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Rating Action:

Moody's changes outlook to negative on Norilsk Nickel; affirms Baa2 rating

21 Oct 2014

London, 21 October 2014 -- Moody's Investors Service has today changed the outlook to negative from stable on the issuer rating of OJSC MMC Norilsk Nickel (Norilsk Nickel) and the rating outlook of MMC Finance Limited, the issuer of senior unsecured loan participation notes issued for the sole purpose of financing loans to Norilsk Nickel. Moody's has also affirmed the ratings at Baa2.

These actions follow the weakening of Russia's credit profile, as reflected by Moody's downgrade of Russia's government bond rating to Baa2 from Baa1 on 17 October. For additional information, please refer to the related announcement: "Moody's Downgrades Russia's Ratings to Baa2; Outlook Negative".

RATINGS RATIONALE

The affirmation of Norilsk Nickel's Baa2 rating reflects

(1) the company's global footprint in selected metals;

(2) low-cost production profile, supporting strong cash flow generation through the cycle;

(3) long-life nickel, copper and platinum group metals reserves;

(4) high product diversification as the company's mineral deposits contain nickel, copper, palladium and platinum, accounting for 46%, 25%, 15% and 9%, respectively, of the company's total metal sales revenue in 2013; and

(5) the company's adherence to improved corporate governance following the sign-off of the major shareholders agreement in December 2012.

The rating also incorporates a significant amount of uncertainty surrounding the base metals outlook. In addition, the stabilisation of the shareholder relationships, which improved the company's corporate governance, comes at the cost of elevated dividends over the next several years. Moody's notes that the company is likely to pay substantial dividends over the next 2-3 years, which are stipulated by the shareholders agreement at 50% of EBITDA. Although the company currently enjoys fairly high nickel prices on supply limitations following the Indonesian ban on exports of unprocessed nickel ore, a shareholder friendly policy might increase the company's reliance on external sources of funding at a time when Russian corporates' access to international capital markets is all but closed, which might cause the company's liquidity profile to weaken.

The Baa2 rating is supported by our expectation that the company's leverage as measured by Moody's-adjusted debt/EBITDA does not exceed 2.0x and that the company will maintain strong profitability through the economic cycle.

RATIONALE FOR THE NEGATIVE OUTLOOK

The negative outlook on Norilsk Nickel's rating is in line with the negative outlook for the sovereign rating and reflects the fact that a potential downgrade of Russia's sovereign rating might result in a downgrade of the company's rating. This reflects the fact that Norilsk Nickel may have to rely on Russian banks for refinancing, which have a credit profile highly correlated to the credit profile of the sovereign.

WHAT COULD CHANGE THE RATING UP/DOWN

Given the negative outlook on the rating, Moody's does not currently envisage any upward pressure on the rating.

Moody's could change the outlook on the rating to stable if the outlook on Russia's government bond rating changes to stable, provided there is no material deterioration in company-specific factors, including operating and financial performance and liquidity.

Conversely, negative pressure could be exerted on the rating if the company's performance deteriorates as a result of lower metal prices, higher operating costs or falling metal recoveries -- exacerbated by its shareholder-friendly finance policy -- such that adjusted debt/EBITDA exceeds 2.0x on a sustained basis. The rating could also be affected by a deterioration of the sovereign's creditworthiness.

PRINCIPAL METHODOLOGIES

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

Norilsk Nickel is the world's leading producer of nickel and palladium and Russia's largest mining company. The company's principal activities are exploration, extraction, refining, and the sale of base and precious metals. The company's major production facilities are located in the Taimyr and Kola Peninsulas of the Russian Federation, and in Australia, Finland, Botswana and South Africa. The company benefits from a high-quality portfolio of low-cost assets and vast reserves in nickel, copper, palladium, platinum and other metals. In 1H 2014, Norilsk Nickel reported revenue of $5.7 billion (2013: $11.5 billion) and Moody's adjusted EBITDA of $2.5 billion (2013: $4.2 billion).

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

Jean-Michel Carayon
Senior Vice President
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
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JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's changes outlook to negative on Norilsk Nickel; affirms Baa2 rating
No Related Data.
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