Baku, Azerbaijan, May 14
By Elena Kosolapova - Trend:
Standard & Poor's Ratings Services affirmed its 'B' long-term and 'B' short-term corporate credit ratings on Kazakhstan-based mining group Eurasian Natural Resources Corporation Ltd (ENRC), the rating agency reported on May 14. S&P removed the ratings from CreditWatch, where originally placed them with negative implications on April 30, 2013. The outlook is negative.
In the fourth quarter of 2013, ENRC completed its leveraged buyout and delisted from the London Stock Exchange and Kazakh Stock Exchange. S&P understands from the management that, as a result of this buyout, ENRC's adjusted total debt has increased substantially to about $8.0 billion as of Dec. 31, 2013. This compares with adjusted $6.1 billion as of one year earlier. The debt increase is largely related to a $1.7 billion acquisition financing that the company received from Russian state-owned bank VTB. VTB and Sberbank are the lenders of the bulk of ENRC's debt.
"We continue to view ENRC's liquidity as "less than adequate," given the high debt maturities from the fourth quarter of 2015. We also view ENRC's access to funding as constrained by risks related to an ongoing Serious Fraud Office investigation," the agency said.
S&P understands from the management that the outcome of the investigation is still unclear and that the investigation will likely be protracted, but that it now largely focuses on past acquisitions in Africa. For this reason, as well as the limited track record of the new management appointed in January this year, the agency continues to assess ENRC's governance as "weak."
The ratings reflect ENRC's stand-alone credit quality, although S&P assesses the company as a government-related entity.
The negative outlook reflects the probability of a downgrade over the next six months if management is not able to address ENRC's currently high leverage. This will depend on new information the agency expects to receive from management over the next three to six months regarding ENRC's debt-reduction strategy.
Any perceived weakening of bank support from Sberbank or VTB would also result in rating downside. S&P might also lower the rating if the final audited IFRS-based report for fiscal-year 2013 includes material credit-negative factors that are as yet undisclosed. The agency will also take into account developments related to the Serious Fraud Office investigation.