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Rating Action:

Moody's changes PGIL's outlook to stable, assigns Ba1 rating with stable outlook to PJSC Polyus and will withdraw PGIL's ratings

14 Jun 2017

London, 14 June 2017 -- Moody's Investors Service (Moody's) has today changed to stable from negative the outlook on the Ba1 corporate family rating (CFR) and Ba1-PD probability of default rating (PDR) of Polyus Gold International Limited (PGIL), which holds a majority stake in Russia's largest gold miner PJSC Polyus (Polyus). At the same time, Moody's has changed to stable from negative the outlook on the Ba1 (LGD 3) ratings of the $500 million senior unsecured notes due 2022 (the Notes) and the $800 million senior unsecured notes due 2023 issued by Polyus Finance Plc. Concurrently, Moody's has affirmed these ratings.

Moody's has also assigned a Ba1 CFR and a Ba1-PD PDR to Polyus. The outlook on the ratings is stable. The rating agency will subsequently withdraw the Ba1 CFR, Ba1-PD PDR and stable outlook of PGIL. The assignment of ratings to Polyus and the pending withdrawal of the ratings of PGIL follow the company's corporate reorganisation, under which Polyus replaced PGIL as the ultimate holding company for the group. Polyus consolidates all the group's assets and will be the reporting entity for the consolidated group going forward.

RATINGS RATIONALE

-- CHANGE OF OUTLOOK TO STABLE --

The change of outlook on PGIL's ratings to stable from negative and the concurrent affirmation of PGIL's ratings reflects Moody's expectation that the company will (1) maintain its Moody's-adjusted debt/EBITDA below 3.5x on a sustainable basis; (2) retain healthy liquidity; and (3) pursue a balanced financial policy, with no elevated shareholder distributions and capex.

-- ASSIGNMENT OF Ba1 RATING --

Polyus's Ba1 CFR factors in (1) the company's global cost leadership and large high-grade reserve base, dominated by open-pit mines; (2) track record of cost-cutting and operational enhancements; (3) Moody's assumption that the debt-financed $3.4 billion share buyback completed in May 2016 was one-off, and Polyus will adhere to a balanced financial policy going forward, with further shareholder distributions not exerting excessive pressure on leverage; (4) the company's very high Moody's-adjusted EBITDA margin of 62.7% at year-end 2016, backed by the weak rouble and completed operational enhancements; (5) the company's leverage decline to 3.2x Moody's-adjusted debt/EBITDA at 31 March 2017 from 3.5x at year-end 2016, and Moody's expectation that the company will reduce its leverage towards or below 3.0x over the next 12-18 months after the commissioning of operations at the Natalka deposit by the end of 2017; (6) the company's strong liquidity and long-term debt maturity profile; and (7) Moody's expectation that the company will demonstrate prudent corporate governance.

At the same time, the rating takes into account the company's (1) fairly moderate size in the global context, with gold production of 1.97 million ounces (Moz) in 2016, although the company is the largest gold miner in Russia; (2) operating and geographic concentration, with only six active mines/deposits and one mine under construction, all located in Eastern Siberia and Far East in Russia; (3) product concentration, as the company produces no by-products; (4) dividend policy which anticipates fairly high dividend payouts; (5) concentrated ownership-related risks, including potential rapid changes in strategy and financial/dividend policy, although mitigated by the anticipated sale of an up to 15% stake in Polyus to a consortium of international investors and public offering of a 7% stake in Polyus on the Moscow and London stock exchanges; (6) large capex programme and execution risks, which are common for mining companies; (7) exposure to volatility in price of gold, although mitigated by revenue stabiliser programme to an extent, and rouble exchange rate; and (8) exposure to Russia's macroeconomic, regulatory and operating environment, as all of the company's operating assets and the predominant share of sales are concentrated in Russia.

-- WITHDRAWAL OF PGIL'S RATINGS

Moody's will subsequently withdraw PGIL's ratings because of the corporate reorganisation, as a result of which Polyus has become the ultimate holding company of the group instead of PGIL, following the transfer of all rights and obligations under all three outstanding Eurobond issues from PGIL to Polyus Finance Plc, a wholy-owned subsidiary of Polyus. Polyus consolidates all the group's assets and will be the reporting entity for the consolidated group going forward. Please refer to the Moody's Investors Service's Policy for Withdrawal of Credit Ratings, available on its website, www.moodys.com.

-- AFFIRMATION OF Ba1 NOTES' RATINGS --

The affirmation of the notes' ratings follows (1) the substitution of the Notes' issuer, as a result of which all rights and obligations under the Notes were transferred from PGIL to Polyus Finance Plc on 30 May 2017; and (2) the assignment of CFR to Polyus, which is a parent company of Polyus Finance Plc. The affirmation of the ratings reflects the fact that after the issuer substitution (1) both notes will continue to rank pari passu with each other and other unsecured and unsubordinated obligations of Polyus's group; and (2) both notes' guarantee structure continues to include the guarantee provided by Polyus's key operating subsidiary, Joint Stock Company Polyus Krasnoyarsk (renamed from Joint-Stock Company Gold-Mining Company Polyus).

RATIONALE FOR THE STABLE OUTLOOK

The stable outlook on Polyus's ratings reflects Moody's expectation that the company will (1) maintain its Moody's-adjusted debt/EBITDA below 3.5x on a sustainable basis; (2) retain healthy liquidity; and (3) pursue a balanced financial policy, with no elevated shareholder distributions and capex.

WHAT COULD CHANGE RATINGS UP/DOWN

Moody's could upgrade the rating if it were to upgrade Russia's sovereign rating and raise the foreign-currency bond country ceiling, and the company were to (1) reduce its Moody's-adjusted debt/EBITDA below 2.5x on a sustainable basis; (2) generate a positive free cash flow on a sustainable basis; (3) maintain healthy liquidity; and (4) pursue a balanced financial policy and prudent corporate governance.

Moody's could downgrade the rating if it were to downgrade Russia's sovereign rating, or the company's (1) Moody's-adjusted debt/EBITDA were to rise above 3.5x on a sustained basis; (2) shareholder distributions or capex were to materially exceed Moody's current expectations; or (3) operating performance and liquidity were to deteriorate materially.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Global Mining Industry published in August 2014. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Jersey-domiciled PGIL is a holder of a 93.14% effective stake (excluding treasury shares) in Polyus, which is one of the lowest-cost gold producers globally, with six operating mines and one development project in Russia. In 2016, the company produced 1.97 million ounces of gold, ranking as the eighth-largest producer globally (according to the company's estimate), and generated revenues of $2.5 billion and reported EBITDA of $1.5 billion. PGIL, which is beneficially controlled by Mr. Said Kerimov, owns a 91.73% stake in Polyus, while a 1.51% stake are treasury shares and 6.76% is in free float on the Moscow Exchange and ADRs in the OTC market.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Artem Frolov
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Limited, Russian Branch
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Russia
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Victoria Maisuradze
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

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