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Fitch: OJSC Raspadskaya Remains on Rating Watch Positive Pending Yuzhkuzbassugol Merger

January 24, 2008 | Cbonds

Fitch Ratings is keeping OJSC Raspadskaya’s (“Raspadskaya”) Long-term Issuer Default (“IDR”) ‘B+’, senior unsecured ‘B+’ and National Long-term ‘A(rus)’ ratings on Rating Watch Positive (“RWP”). The Short-term IDR is affirmed at ‘B’ and removed from RWP, because no multiple-notch upgrade is envisaged for the Long-term IDR.

The ratings were placed on RWP on 18 June 2007, following the announcement of a potential merger with Yuzhkuzbassugol, which is 100%-owned by Luxembourg-based Evraz Group S.A. (“Evraz”). The RWP will be resolved following the closure of the transaction and further clarity regarding the terms and conditions of the potential merger and Yuzhkuzbassugol’s financial profile.

The RWP reflects the possibilities that Raspadskaya’s ratings could be either upgraded or affirmed at the current levels. Fitch believes the combined entity would benefit from enhanced scale and a complimentary product range. The potential merger would create the largest coking coal company in Russia with a total output in excess of 20 million tonnes of raw coal. The RWP also factors in Evraz’s plans to take a stake in Corber (a joint venture entity with Raspadskaya’s management) of over 50%, which will give the steelmaker management control over the combined entity. The potential merger will provide Evraz with a strategic asset by enhancing the vertical integration of its steel-making operations through an increase in self-sufficiency in coking coal. Upon completion of this transaction, Raspadskaya will own 100% of shares in Yuzhkuzbassugol.

Raspadskaya was the second-largest coking coal producer in Russia with a FY06 total output of 10.6 million tonnes and FY06 revenues of USD472m. In FY07 coal production increased 27.7% to 13.6 million tonnes. In H107 Raspadskaya reported revenues of USD338.8m with operating profit margin of around 40%. Yuzhkuzbassugol was the largest producer of coking coal in Russia with a total output of 16.1 million tonnes in 2006 (including 10.7 million tonnes of coking coal), although production is expected to have declined in FY07. Its FY06 revenues totalled USD595m. On 8 June 2007 Evraz acquired the remaining 50% stake in Yuzhkuzbassugol, increasing its ownership to 100%.

No rating impact is expected on Evraz’s Long-term IDR and senior unsecured ‘BB’ and Short-term IDR ‘B’ ratings from the group’s planned stake investment in Corber. Fitch also expects no impact on Evraz’s core subsidiary Mastercroft Limited’s Long-term IDR ‘BB’ and Short-term IDR ‘B’ and on Evraz Securities S.A.’s (“ES”) senior unsecured ‘BB’ rating. The Outlooks on Evraz’s and Mastercroft’s Long-term IDRs are Stable.

Company: Raspadskaya

Full company namePJSC Raspadskaya
Country of riskRussia
Country of registrationRussia
IndustryMining industry

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