Dagong Maintained BBB+ ratings on AO Holding Company Metalloinvest

发布时间:2017-12-08 16:54:03    点击:

Beijing December 8th, 2017 – Dagong Global Credit Rating Company Limited (Dagong) maintained the long-term issuer credit ratings of AO Holding Company Metalloinvest (Metalloinvest or the Company) at ‘BBB+’ (national scale rating at AAA[1]) for both local and foreign currencies. The outlooks on the ratings are ‘Stable’. The rating results reflect that the Company still has rich and quality proven iron ore reserves, vertical integrated business structure, expanding business scale and capacity of high value added production, which offsets the negative effect of fluctuating price of iron and steel, enhances the Company’s wealth creation ability and improves the debt repayment ability and sources.


The rationale is as follows:


1. Russia’s political environment is stable and its continuing implementation of anti-crisis policy has reduced its economy’s dependence on Western countries. The capital strength of the banking system has increased as Russian central bank’s monetary policy gradually relaxed. The sanctions imposed on Russia by the United States and European Union has no substantial effect on Russia’s political power and steel industry. The stabilizing international oil price and ruble’s value play a noticeable role in mitigating the Russia’s inflation. This allows the Bank of Russia to cautiously ease the monetary policy while accruing capital strength — both factors contribute to the real economy’s progressive recovery and improve the Company’s debt repayment environment.


2. Considering the advanced production technology, diversified product mix and character of high value added products, the Company’s wealth creation ability and market competitiveness continue to improve and are expected to maintain the growth trend. Metalloinvest’s rich and quality reserves of proven iron ore and broad consumption scope provide a strong support for its high value added products; the new capacity of HBI-3 further maintained its absolute leading position in global merchant HBI market. Despite global excessive supply of steel, the Company’s market share still expanded due to improved product quality and its market strategy. During the first half of 2017, the Company’s probability metrics such as gross profit margin and EBITDA margin maintained its global leading position. In the future, the wealth creation ability of Metalloinvest is expected to be further enhanced, given its cost control and quality production.


3. The improvement of the Company’s profitability guarantees its CFO coverage to capital expenditure and debts. With profitability improvement and more available cash in the future, the Company’s dependence on debt financing will decline. Besides, the quality realizable assets provide an adequate protection for the Company’s long-and-short-term debt. The asset liquidity improved in 2016 with the increase of 2.87x and 2.24x respectively of current ratio and quick ratio, which remains at a high level in the industry. The continuous debt structure optimization by early debt repayment and redemption with the Company’s own funds markedly decreased the scale of mid-and-short-term debt. Therefore, the degree of deviation between the Company’s debt repayment sources and wealth creation ability is assumed to be further improved.


4. Even though the total amount of debt was slightly increased in H1 2017, the Company sustains smooth domestic and international financing channels; the currency mismatch risk remains low, and the Company has limited debt repayment pressure in the short term. As of the first half of 2017, Metalloinvest’s EBITDA increased nearly 100% compared with that of the last year, which substantially strengthens the Company’s debt repayment and servicing ability. The Company’s profitability is expected to increase with overseas market development and boosted high value added products; the incremental debt room and local and foreign currency debt repayment ability are presumed to be improved as well. Dagong predicts that Metalloinvest’s FCF and EBITDA shall gradually cover more debts during 2017~2019.


The market demand for Metalloinvest’s products is expected to moderately increase, considering the growing demand for high value added products and the Company’s sustained competitiveness of its products. The company’s continuous production of high value added products, cost control and debt structure optimization are expected to improve its profitability and the degree of deviation between repayment sources and wealth creation ability, and to mitigate the negative effect of fluctuating price of iron and steel. Therefore, Dagong holds that the outlooks for both local currency and foreign currency ratings are stable in the next 1~2 years.


[1] We assigned GSR (Global Scale Rating) BBB+ to Metalloinvest. According to Dagong’s Mapping Table for Panda Bond Ratings, Metalloinvest’s NSR (National Scale Rating) is AAA.