February 21, 2008 |
|Fitch Ratings-London/Moscow-21 February 2008: Fitch Ratings has today affirmed Luxembourg-based Evraz Group SA’s (Evraz) Long-term Issuer Default (IDR) and senior unsecured ratings at ‘BB’ and Short-term IDR at ‘B’. The affirmation follows the company’s announcement that it has agreed to purchase up to 51% of China-based, Singapore-listed steel producer, Delong Holdings Limited. At the same time, Fitch has affirmed the ratings of Mastercroft Limited (Evraz’s core subsidiary with most of its assets concentrated in Russia) at Long-term IDR ‘BB’ and Short-term IDR ‘B’. Evraz Securities SA’s (ES) senior unsecured rating is affirmed at ‘BB’. The Outlooks for Evraz’s and Mastercroft Limited’s Long-term IDRs are Stable.|
Assuming that the acquisition will be spread over 2008-2009, Fitch expects Evraz’s gross leverage to stay within the company’s internal financial target of 1.5x this year. Fitch, however, notes the accelerating pace of acquisitions by Evraz, with planned Delong acquisition occurring within three months of its acquisition of US-based Claymont Steel. While the agency continues to view Evraz as being committed to a prudent financial policy, the recent acquisitions have reduced its short-term financial flexibility and its rating headroom within the ‘BB’ rating level. Fitch will monitor the integration of the acquired businesses and the progress of its de-leveraging plans. The agency will look for any shift away from the company’s policy of balancing its growth ambitions with a prudent financial profile.
Under the agreement, Evraz will initially acquire 10% of Delong and, within the next six months, may exercise a call option to acquire an additional 32.08% in Delong, provided certain conditions are met, including the receipt of anti-trust clearance by the Ministry of Commerce and the State Administration of Industry and Commerce of the People’s Republic of China. After this, Evraz may acquire an additional approximate 8.97% of Delong by 2009 when restrictions placed on this stake under existing financing arrangements are removed.
Currently, the shares to be acquired by Evraz are held by Best Decade Holdings Limited, a Singapore-based company. In accordance with Singapore Code on Takeovers and Mergers, Evraz will make a mandatory cash offer for the remaining Delong shares. Overall, the stake of Evraz in Delong may increase to 74% by 2009 from 51% announced as a target 2008. The maximum consideration payable by Evraz will be approximately USD1,105m to be made by 2009 and partially financed by Evraz’s own funds and new borrowings.
Evraz is Russia’s largest vertically integrated steel producer by domestic output and the 13th-largest worldwide. Through recent acquisitions, Evraz has gained a footprint in the US, Italy, Czech Republic and South Africa. Its FY06 revenue was USD8.3bn. In H107 revenue amounted to USD6.0bn with EBITDA of USD2.1bn.
Company: FC EvrazHolding
|Full company name||FC EvrazHolding|
|Country of risk||Russia|
|Country of registration||Russia|