London, 10 September 2012 -- Moody's Investors Service has today upgraded to Ba1 from Ba2 the
corporate family rating (CFR) and probability of default rating (PDR)
of OJSC Sibur Holding (Sibur), Russia's largest petrochemical
company. The outlook on the ratings is stable.
RATINGS RATIONALE
"Today's rating action was driven by Sibur's ability
to maintain strong credit metrics following the change in its ownership,
which had been accompanied by a step-up in debt, and our
understanding is that the new shareholders have endorsed and will support
the company's strategy and conservative financial policies,"
says Sergei Grishunin, Moody's Assistant Vice President --
Analyst and lead analyst for Sibur. The upgrade to Ba1 was also
driven by (1) Sibur's robust historical financial performance through
the cycle, which demonstrated the company's resilience to
downturns; and (2) Moody's expectation that the company will
continue to demonstrate strong financial metrics in the next 12-18
months.
As a result of several transactions between December 2010 and November
2011, a group of shareholders led by Mr. Leonid Mikhelson
purchased 100% of Sibur's share capital. The company's
beneficial ownership structure is now as follows: Mr. Leonid
Mikhelson -- 57.5%; Mr. Gennady Timchenko
-- 37.5%; and a group of current and former Sibur
senior managers -- 5%. The acquisition debt was pushed
down to the Sibur level and, as of end-2011, the company
repaid most of it (approximately USD2.3 billion) using mainly USD1.8
billion in cash proceeds from the sale of non-core assets.
This repayment, coupled with record-high revenue growth and
profitability in 2011 and the absence of substantial shareholder distributions
(contrary to previous Moody's expectations), helped the company
to maintain conservative financial metrics as of end-2011.
These metrics include low adjusted leverage (measured as debt/EBITDA)
of 1.2x (2010: 1.2x) and high adjusted interest coverage
(EBITDA/interest) of 17.8x (2010: 12.8x). Moody's
understands that the new shareholders have endorsed the company's
existing strategy, dividend policy and conservative financial policy,
which includes net debt/EBITDA through the cycle of below 2.5x
and EBITDA/interest expense of above 7.0x.
Historically, Sibur has demonstrated high profitability through
the cycle (with a five-year average adjusted EBITDA margin of more
than 30%), above that of many of its European peers.
This is underpinned by Sibur's competitive cost position,
which in turn is driven by the company's (1) access to low-cost-associated
petroleum gas and competitively priced liquid hydrocarbon feedstock in
Western Siberia; and (2) diversification into the less profit-volatile
business of selling natural gas, liquefied petroleum gas (LPG),
napthta and other related products and fuel additives. In Moody's
view, Sibur's competitive cost position, coupled with
a historically conservative financial profile (with a five-year
average adjusted debt/EBITDA ratio of 1.4x) and adjusted retained
cash flow (RCF)/debt of above 50%), provides the company
with a degree of resilience to down cycles. Moreover, despite
challenging global economic conditions and Sibur's substantial ongoing
capital expenditures, the rating agency expects that the company
will sustain its low cost position and continue to demonstrate strong
financial metrics in the next 12-18 months, in line with
its stated financial policy.
Moody's notes that Sibur's major investment projects --
including its largest, the USD2 billion Tobolsk Polymer plant,
to be launched in first half 2013 -- are on schedule for
completion in 2013/14. The Tobolsk plant will double Sibur's
polymer production and improve its vertical integration, underlying
profitability and cash flow generation.
Moody's understands that Sibur is currently considering a future
expansion of its polymer capacities in Tobolsk, beyond the scheduled
completion of the Tobolsk Polymer plant in 2013-14, with
a final decision expected no earlier than in 2013. It is currently
difficult to estimate the effect of such an expansion on Sibur's
financial profile. However, to prevent its financial and
liquidity profile coming under material pressure and as a result deviating
from its stated financial policy, Moody's would expect Sibur
to either postpone this capacity expansion or find an alternative way
of financing it (including equity) in the event of a deterioration in
the operating environment and/or weaker-than-expected cash
flow generation.
Sibur's ratings remain constrained by (1) its exposure to the inherent
risks of the petrochemical industry, i.e., price
volatility and cyclicality of demand; and; (2) the geographical
concentration of the company's operations in the Russian Federation,
where the political, business, legal and regulatory risks
exceed the global average.
The stable outlook reflects Moody's expectation that Sibur will
continue to adhere to its strategy of organic growth while maintaining
solid financial metrics in line with its stated financial policy,
and a strong liquidity position. The outlook also assumes that
Sibur will continue to implement its investment projects as scheduled
and on budget and return to positive free cash flow generation in the
next 12-18 months.
WHAT COULD CHANGE THE RATINGS UP/DOWN
Positive rating pressure could develop if Sibur were to build a track
record of operating under the new shareholding structure while adhering
to its stated financial policies, capital structure and capital
usage. A rating upgrade would also require the company to undertake
further operational improvements and capacity expansion, resulting
in enhanced scale and product diversification and/or a portfolio mix that
is weighted towards higher value-added output. In addition,
an upgrade would require that Sibur generates positive free cash flow
on a sustainable basis.
Downward pressure on the ratings would be likely to develop if (1) weaker
than than-anticipated conditions in Sibur's key markets were
to result in its leverage (measured of adjusted debt/EBITDA) increasing
to, and remaining, above 2.0x, its adjusted EBITDA
margins declining to, and remaining, below the mid-20s
in percentage terms, and its cash flow generation deteriorating,
with RCF/net debt falling below 20%; or (2) material debt-financed
expansion projects and/or acquisitions, or debt-financed
dividend payouts to shareholders or other shareholder initiatives,
were to lead to the company materially deviating from its stated financial
policies or above mentioned financial thresholds.
PRINCIPAL METHODOLOGY
The principal methodology used in rating Sibur Holding was the Global
Chemical Industry Methodology published in December 2009. Please
see the Credit Policy page on www.moodys.com for a copy
of this methodology.
OJSC Sibur Holding is the largest integrated petrochemical company in
Russia, the Commonwealth of Independent States (CIS) and Central
and Eastern Europe (CEE) in terms of revenue. The company operates
in two business segments: feedstock &energy and petrochemical.
As of end-2011, Sibur reported revenue of approximately USD8.5
billion (excluding the results of the company's mineral fertiliser
and tyre businesses, which it divested in December 2011) and adjusted
EBITDA of around USD3 billion.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant regulatory disclosures in relation
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or category/class of debt or pursuant to a program for which the ratings
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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 relevant 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
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Sergei Grishunin
Asst Vice President - Analyst
Corporate Finance Group
Moody’s Investors Service Limited, Russian Branch
7th floor, Four Winds Plaza
21 1st Tverskaya-Yamskaya St.
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Russia
Telephone: +7 495 228 6060
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David G. Staples
MD - Corporate Finance
Corporate Finance Group
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Moody's upgrades Sibur Holding to Ba1; outlook stable
