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12 Apr 2011
Moscow, April 12, 2011 -- Moody's Investors Service has today assigned a provisional (P)B2
(loss-given default (LGD) 5) rating to the proposed US dollar-denominated
senior unsecured notes to be issued by Evraz Group S.A ("Evraz"
or "the group"). The maturity, the size and the
pricing of the notes are subject to the prevailing market conditions during
placement. The outlook on the rating is positive.
Concurrently, Evraz has launched a tender offer targeting USD350
million out of its outstanding USD1.156 billion worth of senior
unsecured notes maturing in 2013.
Upon a conclusive review of the transaction and a full set of associated
documentation, Moody's will assign a definitive rating to
the notes. A definitive rating may differ from a provisional rating.
RATINGS RATIONALE
"Moody's assignment of the (P)B2 LGD 4 rating reflects that
the notes will be: (i) structurally subordinated to other unsecured
indebtedness of operating companies of the group, currently representing
27% of the total debt but expected to be reduced below 18%
in the medium term; (ii) used to refinance Evraz's existing
indebtedness; and (iii) senior unsecured and have pari passu ranking
with other unsecured obligations of Evraz," says Larissa Loznova,
a Moody's Vice President-Senior Analyst and lead analyst
for Evraz.
Evraz will use the proceeds from the proposed issuance to tender the outstanding
notes due in 2013 and repay other outstanding indebtedness.
Moody's notes the improvements in Evraz's operating performance
and credit metrics since the trough in the steel market, and particularly
during 2010. Evraz's audited financial results for 2010 indicate
improved profitability, with an EBITDA margin of 17.8%,
which allowed the group to reduce leverage on a gross debt basis to 3.5x
by the end of 2010 from 6.7x in 2009. Indeed, the
rating agency expects a further reduction in leverage, towards 2.5x-3.0x
by the end of 2011, although the group's gross debt remains
largely unchanged.
Evraz's recent performance was supported by improving market fundamentals
in its key markets including Russia and North America. Despite
significant increases in raw material prices for iron ore and coking coal,
a high level of vertical integration allowed the group to sustain margin
pressure and capitalise on the market recovery.
Furthermore, Moody's recognises the efforts made by Evraz
to further strengthen its liquidity profile and extend its debt maturities,
with the group facing no significant debt maturities over the next two
years. Moody's also notes that the group has achieved sufficient
headroom under the existing financial covenants based on 2010 full-year
results.
The positive outlook on the rating reflects Moody's expectation
of continued improvements in Evraz's operating performance and credit
metrics during 2011.
The current CFR of B1 is supported by: (i) the fact that Evraz is
a strong global steel producer with a cost-efficient asset base
and a business profile that has gained geographical diversity in the past
few years, thereby reducing the group's dependence on Russia;
(ii) expectations of a continuing recovery in the global steel market;
(iii) further improvement in the group's credit metrics; (iv)
the strengthening of its liquidity profile and further extension of its
debt maturities; (v) Moody's expectation that the group will
use the free cash flow it generates to reduce its debt; and (vi)
the group's intention to restore its financial leverage, measured
by net reported debt/EBITDA, at the self-imposed target of
2.0x in the medium term.
In Moody's view, the launched tender offer in relation to
Evraz's outstanding USD1.156 billion worth of senior unsecured
notes due in 2013 does not directly impact the (P)B2 rating assigned to
the group's proposed notes issuance.
LAST RATING ACTION & PRINCIPAL METHODOLOGY
Moody's last rating action on Evraz was implemented on 20 December
2010, when the rating agency changed the outlook on the group's
rating to positive from stable.
The principal methodology used in this rating was Global Steel Industry
published in January 2009.
Evraz Group is the largest vertically integrated steel company in Russia
(by volume and assets), with assets also in Ukraine, Europe,
North America and South Africa. In 2010, these assets:
(i) produced 16.3 million tonnes of crude steel (6.3%
increase Y-o-Y), including 14.7 million tonnes
of rolled products; (ii) reported revenue of USD13.4 billion
(38% increase Y-o-Y); and (iii) generated EBITDA
of USD2.4 billion (90% increase Y-o-Y).
Evraz's principal assets are steel plants in Russia, Europe,
North America, South Africa and Ukraine, iron ore and processing
facilities, as well as coal mines, logistics and trading assets.
Lanebrook Ltd holds 72.9% of the share capital of the group.
Some 27.1% of share capital is in free float.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, and public information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Moscow
Larissa Loznova
Vice President - Senior Analyst
Corporate Finance Group
Moody's Eastern Europe LLC
Telephone: +7 495 228 6060
Facsimile: +7 495 228 6091
London
David G. Staples
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
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Telephone: +7 495 228 6060
Facsimile: +7 495 228 6091
Moody's assigns (P)B2 rating to Evraz's proposed senior unsecured notes; positive outlook (Russia)
No Related Data.
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