Press Releases / 04.03.2014
Press Release as of 04.03.2014
AK&M Rating Agency affirmed Mechel OAO's national scale credit rating at 'A'. The outlook is negative.
The 'A' rating indicates that Mechel OAO qualifies as a highly reliable borrower. Risk of a delay in meeting liabilities is relatively low, restructuring risk for a loan / part of a loan is minimal.
We regard the recent downward trend in the total amount of liabilities and total loan debt, successfully implemented new structural strategy and debt restructuring policy, comfortable turnover ratios for receivables and payables, vigorous development of the Elginskoye (Elga) coal deposit, and long maturity periods for most of the debt as the main positive rating drivers for Mechel OAO.
In 2012, Mechel addressed the issue of heavy liabilities and high leverage. For the 12-month period ending on October 1, 2013, Mechel's total liabilities decreased by more than 5.7%, total loan debt by almost 5.9%.
Mechel OAO's management team has adopted and is currently implementing a new development strategy which aims to add momentum and efficiency to the Company's operations. Mechel is poised to divest a number of assets outside its core businesses, so as to significantly reduce operating expense, to mobilize additional financial resources, to enhance its financial capacity, and to keep its current credit rating.
We also appreciate the successful debt restructuring efforts as a positive argument for the current rating of Mechel OAO. In negotiations with the principal lenders (primarily Sberbank of Russia, JSC Gazprombank and Bank Uralsib), Mechel arranged for longer maturities of several principal payments, with final principal repayment deadlines moved back beyond this year for a number of loans and credits.
Mechel OAO's consolidated report indicates healthy turnover ratios for receivables and payables (14.1 and 11.7 as of October 1, 2013, respectively).
The main phase of the development project at the Elginskoye (Elga) deposit abounding in coking coals is successfully completed, which contributes to Mechel OAO's rating. The Company has started operation of the recently constructed 321 kilometer-long railway line connecting the Elginskoye deposit with the Ulak station on the Baikal-Amur Mainline, and launched the Elginskaya coal preparation plant. In September 2013, state corporation Vnesheconombank provided financing in the amount of USD 2.5 billion for the further development of the Elga coal complex.
Most of the Company's debt continues to arise from its long-term loan obligations, which we regard as a major positive rating driver on the short term horizon; for the 12-month period expired, Mechel has further improved its debt profile, the share of long-maturity loans now reaching almost 79%.
At the same time, Mechel OAO's permanently heavy debt burden, current loss-making activity, downward trend in the assets and equity capital, currency risks arising from a high export orientation, and dependence on the global coal and steel markets are working against the Company's credit rating and impairing the rating outlook.
Despite a favorable downward trend in the amount of liabilities and total loan debt, Mechel OAO is still saddled with heavy debts, which prevents a higher credit rating. As of October 1, 2013, its debt-to-revenue ratio was 1.4, debt-to-equity ratio was 10.3, while interest coverage ratio was negative.
We regard Mechel OAO's loss-making operations in 2013 as a present-day negative rating driver. At the end of the third quarter of 2013, the Company's operating loss reached USD 393.2 million, net loss amounted to USD 2,243.6 million.
Both assets and equity capital of Mechel OAO shrank in 2013. For 9 months of 2013, the Company's equity capital decreased by 63.5%, assets by 17.4%.
The Company's dependence on the global market environment, particularly ensuing exposure to price, marketing and currency risks sends another negative signal for its rating. Mechel exports a large part of its goods and its financial soundness in many respects depends on the general economic trends influencing the demand and pricing in the coal and steel markets, as well as the US dollar stability.
Mechel OAO founded 2003 is one of the largest mining and metallurgical companies in Russia and worldwide. The Company is on the list of the backbone enterprises of Russia. Mechel OAO is a vertically integrated holding comprising four business segments (mining, metallurgical, ferroalloy industry and power engineering) with production assets in Russia and abroad. The Company's mining enterprises produce and sell coal, iron-ore concentrate and coke. Mechel's metallurgical companies are engaged in the production and sale of steel, rolled metal products, cast iron, and metal goods. The ferroalloy unit specializes in the production of ferrosilicon, ferrochrome and nickel. The group also owns commercial ports, as well as marketing, transport and power companies. At the beginning of the fourth quarter of 2013, Mechel's US GAAP assets amounted to USD 14.6 billion.
Official Company name: Mechel OAO.
This press release is based on the statement of assigning a credit rating to Mechel OAO.
The credit rating, along with any information and conclusions provided in this press release, only conveys our opinion on the Company's reliability and shall not be construed as advice on the purchase and sale of securities or the provision of loan facilities to the Company.
CJSC AK&M Rating Agency will not incur any responsibility for any interpretations, inferences and consequences related to the application of results of the rating estimation procedure by any third parties.
CJSC AK&M Rating Agency is a leading independent national rating agency engaged in rating activities since 1993.
CJSC AK&M Rating Agency is accredited by the Ministry of Finance of the Russian Federation (order no. 452 as of September 17, 2010).
CJSC AK&M Rating Agency