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Rating Action:

Moody's changes Severstal's ratings outlook to positive; affirms Ba1 CFR

Global Credit Research - 26 Aug 2013

London, 26 August 2013 -- Moody's Investors Service has today changed to positive from stable the outlook on OAO Severstal ratings. Moody's has also affirmed Severstal's corporate family rating (CFR) and probability of default rating (PDR) at Ba1 and Ba1-PD, respectively. Concurrently, Moody's has affirmed the ratings on the senior unsecured debt and med-term notes program issued by Steel Capital S.A. at Ba1 and (P)Ba1 (with a loss-given default assessment of LGD4, 54%), respectively.

"Today's change in outlook reflects Severstal's strong operating performance, favourable cost structure and the company's commitment to keeping its leverage ratio as measured by net debt/EBITDA at below 2.0x over the next 12-18 months" says Denis Perevezentsev, a Moody's Vice President and lead analyst for Severstal. "This strongly positions the company's credit profile among its global peers in the highly competitive steel sector".

RATINGS RATIONALE

The positive outlook reflects Moody's view that Severstal's financial metrics will be resilient, even in the currently challenging macroeconomic environment and soft global steel market. The company's exposure to the Russian and US markets, where end-user demand and capacity utilisations are quite strong compared with Europe, and its fairly conservative leverage as measured by net debt/EBITDA will continue to position the company favorably among its global steel peers. The outlook also incorporates the rating agency's expectation that the company will maintain a solid liquidity profile.

Moody's expects that Severstal will be able to maintain its current cost-competitive position as a result of the company's high level of vertical integration into key raw materials and self-sufficiency in coal and iron ore. Moreover, Moody's expects that Severstal's mining segment, into which the company is vertically integrated, will continue to be one of the main contributors to the company's EBITDA, primarily as a result of Severstal's adequate cash cost position and strong market environment in the iron ore sector, despite somewhat elevated cash costs and currently low prices for coking coal.

WHAT COULD CHANGE THE RATING UP/DOWN

Moody's would consider upgrading Severstal's rating if the company were to continue to demonstrate a conservative financial profile, with (1) gross debt /EBITDA below 2.0x on a sustainable basis; (2) EBIT margin sustainably in the mid-teens in percentage terms; and (3) prudent liquidity management.

Negative rating pressure would occur if Severstal's Moody's-adjusted gross debt/EBITDA ratio moved above 3.0x or if its (CFO-dividends)/debt ratio declined to below 20% on a sustainable basis. A deterioration in the company's currently strong liquidity position would also exert pressure on the rating and/or outlook.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was the Global Steel Industry published in October 2012. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Severstal is a vertically integrated global steel and steel-related mining company, with assets in Russia, the US, Ukraine, Latvia, Poland, Italy, Liberia and Brazil. Severstal is listed on the Moscow Interbank Currency Exchange (MICEX) and the company's global depository receipts are traded on the London Stock Exchange (LSE). Currently approximately 79.17% of Severstal's share capital is indirectly controlled by Mr. Alexey Mordashov, the company's CEO. In 2012, Severstal had revenue of $14.1 billion (2011: $15.8 billion) and EBITDA of $2.1 billion (2011: $3.6 billion). Severstal's crude steel production in 2012 reached 15.1 million tonnes (2011: 15.3 million tonnes).

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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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.

Denis Perevezentsev
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Limited, Russian Branch
7th floor, Four Winds Plaza
21 1st Tverskaya-Yamskaya St.
Moscow 125047
Russia
Telephone: +7 495 228 6060
Facsimile: +7 495 228 6091

David Staples
MD - Corporate Finance
Corporate Finance Group
Telephone: 00971 4237 9536

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Moody's changes Severstal's ratings outlook to positive; affirms Ba1 CFR
No Related Data.

 

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