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Rating Action:

Moody's downgrades ratings of five issuers in Ukraine to Caa1; on review for downgrade

24 Sep 2013

Actions follow downgrade to Caa1 from B3 of Ukraine's sovereign rating

London, 24 September 2013 -- Moody's Investors Service has today downgraded to Caa1 from B3 the corporate family ratings (CFR) and to Caa1-PD from B3-PD the probability of default ratings (PDR) of five companies operating in Ukraine, namely: Metinvest B.V., Fintest Trading Co Limited (Donetsksteel), MHP S.A., Lemtrans LLC and Ferrexpo Plc. Moody's has also downgraded the national scale ratings (NSR) of four of these companies to Ba3.ua, by three notches from Baa3.ua in the case of Fintest Trading Co Limited (Donetsksteel), MHP S.A. and Lemtrans LLC, and by four notches from Baa2.ua in the case of Metinvest B.V. In addition, Moody's has downgraded to Caa1/(P)Caa1 from B3/(P)B3 senior unsecured ratings of notes issued by MHP and Metinvest while the rating on the senior unsecured notes of Ferrexpo Finance plc, a subsidiary of Ferrexpo Plc, remains at Caa1. Concurrently, the rating agency has placed all of these ratings on review for downgrade.

The rating action follows Moody's action to downgrade Ukraine's sovereign rating to Caa1 from B3 and place it on review for downgrade, as well as lower the country's foreign-currency bond country ceiling to Caa1 from B3, on 20 September 2013. For additional information on sovereign ratings, please refer to the webpage containing Moody's related announcement https://www.moodys.com/research/Moodys-downgrades-Ukraines-government-bond-rating-to-Caa1-from-B3--PR_282707

RATINGS RATIONALE

The affected companies' business profiles and financial metrics are strong for a Caa1 rating. However, their ratings are constrained by that of the sovereign, because the companies are exposed to Ukraine's political, legal, fiscal and regulatory environment, given that most or all of their assets are located within the country. The companies' capacity to serve foreign currency debt could be negatively affected by the potential actions taken by Ukrainian government to preserve the country's foreign-exchange reserves. In addition, the companies' revenues and cash flows generated in the country are exposed to foreign-currency transfer and convertibility risks, which are reflected in the Caa1 foreign-currency bond country ceiling for Ukraine.

The review for downgrade reflects the fact that a potential further downgrade of Ukraine's sovereign rating may result in the further lowering of Ukraine's foreign-currency bond country ceiling. In addition to considerations related to the sovereign rating, Moody's review of the companies' ratings will be focused on an assessment of the companies' individual ability to address increasing country and foreign exchange risks.

WHAT COULD CHANGE THE RATINGS UP/DOWN

The companies' ratings will be ultimately dependent on further developments at the sovereign level. The ratings are likely to be downgraded if there is a further downgrade of Ukraine's sovereign rating and/or lowering of the foreign-currency bond country ceiling.

Conversely, positive pressure could be exerted on the ratings if Moody's were to upgrade Ukraine's sovereign rating and/or raise its foreign-currency bond country ceiling, provided there is no material deterioration in the company-specific factors, including their operating and financial performance, market positions and liquidity.

PRINCIPAL METHODOLOGIES

The principal methodology used in rating Fintest Trading Co Limited (Donetsksteel) was Global Mining Industry published in May 2009. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

The principal methodologies used in rating Ferrexpo Plc and Ferrexpo Finance plc were Global Mining Industry published in May 2009, and 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.

The principal methodologies used in rating Metinvest B.V. were Global Steel Industry published in October 2012, and 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.

The principal methodology used in rating Lemtrans LLC was Global Surface Transportation and Logistics Companies published in April 2013. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

The principal methodologies used in rating MHP S.A. were Global Protein and Agriculture Industry published in May 2013, and 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.

Moody's National Scale Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs differ from Moody's global scale ratings in that they are not globally comparable with the full universe of Moody's rated entities, but only with NSRs for other rated debt issues and issuers within the same country. NSRs are designated by a ".nn" country modifier signifying the relevant country, as in ".mx" for Mexico. For further information on Moody's approach to national scale ratings, please refer to Moody's Rating Methodology published in October 2012 entitled "Mapping Moody's National Scale Ratings to Global Scale Ratings".

Metinvest B.V., registered in the Netherlands, is the holding company of a vertically integrated group, which is one of the largest steelmakers and iron ore producers in the CIS. The company has three hot steel plants with the capacity to produce approximately 15 million tonnes of crude steel annually, equivalent to approximately 45% of all steel cast in Ukraine in 2012, a rolling mill and a large diameter mill in Ukraine and also has rolling mills in Italy, Bulgaria and the UK. The company produces finished flat and long steel products, large diameter pipes and semi-finished steel products (slabs and billets). In 2012, Metinvest produced approximately 12.5 million tonnes of crude steel and 36.2 million tonnes of iron ore concentrate and mined 11.6 million tonnes of coking coal. In 2012, Metinvest reported revenue of $12.6 billion and EBITDA of $2.0 billion. The company is privately owned. The major shareholders of the group are a Ukrainian investment holding company, System Capital Management (SCM), with a 71.25% share in Metinvest, and Smart group, which owns 23.75%.

Headquartered in Donetsk, Ukraine, and incorporated in Cyprus, Donetsksteel is one of the leading Ukrainian coking coal mining companies. The company has a significant reserve base of highest quality coal (grade K as per local classification) and is vertically integrated into coke and steel production. In 2012, Donetsksteel mined approximately 8.4 million metric tonnes (mmt) of raw coal, produced 4.9 mmt of coal concentrate, 2.8 mmt of coke, 1.3 mmt of pig iron and 0.17 mmt of steel products (sections and plates). The company's major external purchases are iron ore for steel products and modest amounts of coal of various grades to complement its own grades for coke production. In 2012, the company had revenues of more than $2.0 billion. In 2011, approximately 36% of Donetsksteel's revenues were generated in Ukraine (mainly US dollar-denominated sales), with the remainder generated in Europe (35%), Asia (22%), the CIS, the Baltic countries and South America.

MHP S.A. is one of Ukraine's leading agro-industrial groups. The company's operations include the production of poultry and sunflower oil, as well as the production and sale of convenience foods. In addition, MHP is vertically integrated into grain and fodder production, and operates one of the largest land banks in Ukraine. The holding company, MHP SA, is domiciled in Luxembourg, while all of MHP's production assets are located in Ukraine. In 2012, the company's dollar-denominated total revenue and adjusted EBITDA amounted to around $1.4 billion and $487 million, respectively.

Lemtrans is the largest private freight rail transportation company in Ukraine. In 2012, the company derived 79% of its revenues from freight transportation and other related services, 17% from trading freight railcars and producing railway equipment, and 4% from financial leasing of railway equipment. Lemtrans is fully controlled by System Capital Management Limited (SCM).

Ferrexpo Plc, headquartered in Switzerland and incorporated in the UK, is a mid-sized iron ore pellet producer with mining and processing assets located in Ukraine. The group has total Joint Ore Reserves Committee Code (JORC) classified resources of 6.7 billion tonnes, around 1.5 billion tonnes of which are proved and probable reserves. The average grade of Ferrexpo's ore is approximately 31% Fe. In last 12 months to June 2013, the group generated sales of $1.47 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.

The below contact information is provided for information purposes only. Please see the ratings tab of the issuer page at www.moodys.com, for each of the ratings covered, Moody's disclosures on the lead analyst and the Moody's legal entity that has issued the ratings.

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

Victoria Maisuradze
Associate Managing Director
Corporate Finance Group
Telephone: +7 495 228 6060
Facsimile: +7 495 228 6091

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Moody's downgrades ratings of five issuers in Ukraine to Caa1; on review for downgrade
No Related Data.
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