Baku, Azerbaijan, June 29
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International ratings agency S&P Global Ratings upgraded long-term corporate credit rating of Kazakh mining and metallurgical company Eurasian Resources Group (ERG) S.a.r.l. from "B-" to "B" and affirmed the short-term rating at "B" with the positive forecast.
The agency noted that this, combined with moderate capital expenditures ($605 million last year), led to high indicators that exceeded the agency's previous forecasts: EBITDA amounted to $2 billion, the value of Free Cash Flow from Operating Activities (FOCF) was positive and amounted to $476 million, and the FFO/debt ratio increased to 14 percent last year.
Under the baseline scenario, S&P expects the company to be able to demonstrate adequate results for the B rating category.
S&P noted that another factor limiting the company's credit profile is the large-scale capital expenditure program. ERG ratings continue to reflect S&P assessment of its business risk profile as "weak".
The company continues to be exposed to high risks associated with the volatility of prices for raw materials (in particular, ferrochrome alloys, aluminum and iron ore) as well as the exchange rate of tenge against major hard currencies, the S&P message says.
Other limitations include capital intensity of operations and project risks associated with a large-scale investment program. In addition, the agency's analysts say the ERG is exposed to high country risks, as most assets are located in Kazakhstan and, to a lesser extent, in the Democratic Republic of the Congo.
The positive outlook reflects the likelihood of rise of the ERG ratings in the next 12-18 months if the company will be able to maintain a positive value of the generated cash flow and will continue to demonstrate the enhancement of creditworthiness performance, under which the FFO/debt ratio will steadily exceed 20 percent.