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Rating Action:

Moody's places Evraz's Ba3 rating on review for downgrade

11 Apr 2016

London, 11 April 2016 -- Moody's Investors Service (Moody's) has placed on review for downgrade the Ba3 corporate family rating (CFR) and Ba3-PD probability of default rating (PDR) of Russian vertically integrated steel and mining company Evraz Group S.A. (Evraz), and the B1 (LGD 5) senior unsecured ratings assigned to the notes issued by Evraz and Raspadskaya Securities Ltd.

List of affected ratings:

On Review for Downgrade:

..Issuer: Evraz Group S.A.

....Corporate Family Rating, Placed on Review for Downgrade, currently Ba3

....Probability of Default Rating, Placed on Review for Downgrade, currently Ba3-PD

....Senior Unsecured Regular Bond/Debenture, Placed on Review for Downgrade, currently B1

..Issuer: Raspadskaya Securities Ltd.

....Senior Unsecured Regular Bond/Debenture, Placed on Review for Downgrade, currently B1

Outlook Actions:

..Issuer: Evraz Group S.A.

....Outlook, Changed To Rating Under Review From Stable

..Issuer: Raspadskaya Securities Ltd.

....Outlook, Changed To Rating Under Review From Stable

RATINGS RATIONALE

Today's rating action reflects the material deterioration in Evraz's financial performance in the second half of 2015, which led to Evraz's year-end 2015 financial metrics weakening substantially beyond Moody's expectations. As of year-end 2015, the company's gross debt/EBITDA rose to 4.7x from 2.8x at year-end 2014 and EBIT interest coverage fell to 1.8x from 2.7x (all metrics are Moody's-adjusted). This deterioration in metrics was driven primarily by the company's reported 40% decline in EBITDA due to weakened steel prices in the Russian and international markets. Moody's notes that Evraz's leverage is stronger on a net debt basis, with Moody's-adjusted net debt/EBITDA of 3.7x at end-2015.

Moody's does not expect any meaningful sustainable recovery in steel prices over the next 12-18 months in light of the continuing weak domestic demand in Russia and steel overcapacity in international markets. Nevertheless, Moody's recognizes that the company maintains a prudent financial policy and will pursue cost cutting. The rating agency also positively notes the company's solid liquidity and recent measures to extend its debt maturity profile.

The review for downgrade will focus on the assessment of Evraz's ability to reduce its adjusted gross debt/EBITDA below 3.5x over the next 12-18 months, while maintaining positive free cash flow generation. The review will also take into account the company's potential measures to improve its financial performance.

In addition to the deterioration of Evraz's financial metrics, the company's Ba3 rating factors in (1) weak demand for steel in Russia as a result of GDP decline, in particular shrinking construction, against the background of long steel capacity additions in 2013-14; (2) the structural oversupply of steel, exacerbated by weakening steel demand in China and growing export volumes from South-East Asia, which exert negative pressure on prices in key international markets; and (3) low oil and gas prices, which will continue exerting pressure on the company's US and Canadian assets' operations and financial performance in 2016.

More positively, the rating takes into account (1) Evraz's profile as a low-cost integrated steelmaker; (2) increased barriers to entry in the Russian market for imported steel products owing to the weak rouble; (3) the reduced cash costs of the company's coking coal and iron ore production; (4) the company's strong market position in long steel products in Russia; (5) its product, operational and geographic diversification; (6) its financial policy focus on deleveraging; and (7) the company's solid liquidity.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Global Steel Industry published in October 2012. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.

Evraz Group S.A. (Evraz) is one of the largest vertically integrated steel, mining and vanadium companies in Russia. Evraz's principal assets are steel plants (in Russia, North America, Europe, South Africa, Kazakhstan and Ukraine), iron ore and coal mining facilities, as well as logistics and trading assets located predominantly in Russia. In 2015, Evraz generated revenues of $8.8 billion (2014: $13.1 billion) and Moody's-adjusted EBITDA of $1.4 billion (2014: $2.3 billion). EVRAZ plc currently holds 100% of the company's share capital and is itself jointly controlled by Mr. Roman Abramovich, Mr. Alexander Abramov, Mr. Alexander Frolov and Mr. Eugene Shvidler.

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

Victoria Maisuradze
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's places Evraz's Ba3 rating on review for downgrade
No Related Data.
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