30 Oct 2009 16:26

Moody's changes the outlook of NLMK's Ba1 rating to stable from negative

MOSCOW. Oct 26 (Interfax) - Moody's Investors Service has changed the outlook for Novolipetsk Steel's (NLMK's) (RTS: NLMK Ba1 corporate family rating and the outlook on NLMK's Aa1.ru national scale rating to stable from negative, the agency said in a press release.

This rating action reflects the fact that the company was able to show resilient performance and credit metrics for 2008 and 1H 2009. Although, the global operating environment for steel producers continues to be challenging, the recent operating update indicates that NLMK is able to demonstrate improving profitability, sound liquidity profile, and conservative financial metrics. 1H 2009 results indicate stable financial performance, which might be attributed to certain price stabilisation, partial recovery in demand in export markets as well as revival in demand in the domestic market especially in the flat steel segment.

Moody's notes that the company is making all necessary steps to adjust its operations to current market conditions including cost reduction measures, scale down in capex expense and rationalization of its operations.

The rating positioning and stable outlook reflects the solid business profile of the company as well as the fact that the company continues to have the lowest absolute level of debt and leverage among peers. The current rating level is premised on NLMK being able: (i) to maintain on sustainable basis the ratio gross debt/EBITDA at a level not exceeding the 2.0x, although, in 2009 it might temporary increase above the guidance and FCF/Debt above 10% though possible one-year dip at 5%.

The last rating action was on October 24, 2008 when Moody's Investors Service changed the outlook for NLMK's Ba1 corporate family rating and the outlook on NLMK's Aa1.ru national scale rating to negative from stable. The rating action was prompted by the lawsuit which DBO Holdings, Inc. brought against the company concerning NLMK's proposed acquisition of the John Maneely Company. On March, 11, 2009 NLMK announced that the company and DBO Holdings, Inc. have signed a settlement agreement with respect to their dispute concerning NLMK's proposed acquisition of John Maneely Company. The agreement provides for the full mutual release and discharge by NLMK and DBO from their claims arising from the transaction.

Although, Moody's positively viewed this development at the time, the negative outlook was then left unchanged due to continued negative pressure on the steel markets including significant drop in demand and falling steel prices.