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13 Oct 2010
Moscow, October 13, 2010 -- Moody's Investors Service has today confirmed the B1 corporate family
rating for Raspadskaya and the B1 rating for the Loan Participation Notes
due in May 2012 issued by Raspadskaya Securities totaling USD 300 million.
At the same time Moody's Interfax Rating Agency, which is majority
owned by Moody's, has confirmed Raspadskaya's A1.ru national
scale rating. The outlook to all ratings is negative.
This rating action concludes the review initiated on May, 12,
2010 when the company was placed under review for a possible downgrade
following the explosions at the largest mine of the company which accounted
for an app. 70% of the total production volume.
The review focus was identified as: (i) the potential length and
extent of interruption of production at the Raspadskaya mine and the possible
mitigates that other producing assets of the company or existing inventories
could bring to revenue flow, (ii) the ensuing revenue loss and financial
consequences if such suspension of mine operations was to last for an
extended period, (iii) the importance of investments and expenses
that may be required to re-launch the mine's operation, and
(iv) the potential company's liability arising from this event.
The B1 CFR reflects Moody's view that the currently benign operating
environment for coal mining with undersupply of premium coal and historically
high prices should allow Raspadskaya to weather the low output period
until restart of production at the Raspadskaya mines without material
cash flow shortfalls compared to the weak fiscal year 2009 while absorbing
the larger part of repair and reconstruction cost in operating cash flows.
The rating is supported by Raspadskaya's low operating cost and
conservative capital structure tempered by liquidity management that relies
on cash balances and continued support by its bank lenders.
Raspadskaya had entered this troubled period for its operations with a
strong financial profile supported by conservative credit metrics,
a solid cost competitiveness with high margins potential, and a
good cash position which provides some degree of protection to negative
developments. Raspadskaya estimates that the cost to rebuild the
affected mine will not exceed app. USD 280 million, most
of which as increased operating expenses, and is planning to restart
operations there in the last quarter of 2010. Though the 1H 2010
performance was strong, the agency comments that it largely reflects
strong pre-accident (which occurred in May 2010) performance on
the back of increase in prices. The negative outlook is premised
on: (i) the expected weakening of cash flow generation linked with
the unavailability for production of the principal mine of the company
for several months and the fact that the restart of operations at the
Raspadskaya mine is likely to be only progressive, which increases
the dependence on market prices for coal remaining high; (ii) the
remaining uncertainties associated with repair work to be completed on
time and on budget; and (iii) the possible delays in expected volumes
increases at other mines to mitigate the loss of production from Raspadskaya
The company benefits from favorable market conditions for mining companies
in 2010 with current prices for coal concentrate in Russia at app.
USD 120/t (for Raspadskaya grades of coal), ie much better than
in 2009, which should support a reasonably solid cash flow generation
and help the company to maintain healthy credit metrics despite the Raspadskaya
mine interruption. Furthermore, 3Q 2010 operating performance
indicates that the price assumption for the full year could hold allowing
the company to have decent financial metrics in spite of the significant
loss in volumes of coal produced. For 2011 volumes are expected
by Raspadskaya to pick up from the start of the year ollowing a substantial
but progressive recovery at Raspadskaya mine and increased production
at other mines.
Moody's also expects that the cost for reconstruction of the damaged
mine will primarily be absorbed in its operating costs. At the
end of 1H 2010 Raspadskaya had USD 286 million in cash balances and short-term
deposits which would be available to fund potential cost overruns.
In order to maintain the current rating, Moody's would expect
that the issue of maturing USD 300 million LPN in 2012 will be addressed
in a timely manner.
Negative pressure would develop on the rating should the major assumptions
supporting the current rating not materialize, ie that (i) the company
may not be able to re-start limited operations at Raspadskaya mine
by the end of 2010; (ii) that the effective costs and capital expenditures
for the restoration of the affected mine may materially exceed management
estimates; and (iii) the company may not be able to generate positive
free cash flow on an on-going basis because of either continued
low production rates or a collapse of coal prices or a combination of
The last rating action was on May 12, 2010 when Moody's placed OAO
Raspadskaya's B1 corporate family rating and B1 rating for Loan Participation
Notes due in 2012 issued by Raspadskaya Securities and totaling USD 300
million on review for possible downgrade. At the same time Moody's
Interfax Rating Agency, which is majority owned by Moody's,
placed Raspadskaya's A1.ru national scale rating on review for
possible downgrade. The action reflected the uncertainties surrounding
the impact of the recent accident at Raspadskaya mine in Kemerovo region
on the company's operating performance going forward.
The principal methodology used in rating Raspadskaya was Global Mining
Industry, May 2009 (116843), which can be found at www.moodys.com
in the Rating Methodologies sub-directory under the Research &
Ratings tab. Other methodologies and factors that may have been
considered in the process of rating Raspadskaya can also be found in the
Rating Methodologies sub-directory on Moody's website.
Raspadskaya is one of the largest Russian coking coal producer and is
among the top 10 coking coal producers globally with a coal production
volume of 9.41 mln t in 2008 and 10.56 mln t in 2009 and
sales of 7,03 mln t of coal concentrate in 2008 and 7,72 mln
t of coal concentrate in 2009. In 1H 2010 the company mined 4.8
million t of coal and produced 3.8 million t of concentrate.
The company's production assets consist of three underground mines,
one open-pit, a coal preparation plant, and one more
mine is currently under construction, as well as a coal transportation
network and a number of integrated infrastructure companies. All
the assets are located in Kuzbass Basin (Kemerovo region, Russia).
The company is controlled by management and Evraz Group (rated B1,
stable outlook) through equal stakes in Corber Enterprises Ltd.
which holds an 80% stake in Raspadskaya. In 2009 the company
reported revenue of USD 497 million (59% decrease Y-o-Y)
and USD 255 million of EBITDA (71% decrease Y-o-Y)
based on audited consolidated financial statements. In 1H 2010
Raspadskaya generated USD 466 million in revenue, a 215 %
increase and USD 330 million in EBITDA, a 61% increase vs.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
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Please see ratings tab on the issuer/entity page on Moodys.com
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Please see the ratings disclosure page on our website www.moodys.com
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used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Vice President - Senior Analyst
Corporate Finance Group
Moody's Eastern Europe LLC
Telephone: +7 495 228 6060
Facsimile: +7 495 228 6091
Eric de Bodard
MD - Corporate Finance
Corporate Finance Group
Moody's France SAS
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Moody's Eastern Europe LLC
Moody's confirmed the B1 rating for Raspadskaya and changed the outlook to negative
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