Russian aluminium giant UC Rusal announced yesterday that it has been assigned its first-ever corporate family rating (CFR) and probability of default rating (PDR) from Moody’s Investors Service, assigning it a Ba3 and Ba3-PD, respectively.
“The assignment of the Ba3 rating by Moody’s, one of the most renowned international rating agencies with worldwide recognition, serves as additional testimony to the Company’s strong market position, effective management policy and clear strategy. We believe that the assigned rating is a good start for the Company’s credit rating story, which will be positively received by the investment community and will support the Company’s position on capital markets,” said Oleg Mukhamedshin, UC RUSAL’s Deputy CEO, Director for Strategy, Business Development and Financial Markets.
In assigning the ratings, Moody’s took into account several factors. Among them is Rusal’s place as the world’s second-largest producer of elemental aluminium, the largest aluminium producer in Russia, the low cash costs of production (Rusal is 80% self sufficient in the production of bauxite and 100% self sufficient in the production of alumina), the several long-term agreements the firm has with power plants, which keep power costs down, and geographic diversification of its mining assets and aluminium sales.
According to Moody’s, factors that kept the firm from a higher rating include the fact that a great deal of its assets are in Russia, the volatility of the aluminium market in general, and potential political, business, and social instability in the states within which Rusal operates, specifically in the countries of Ukraine, Guyana, Guinea, and Jamaica.
A credit rating of Ba3 is close to the high end for speculative-grade securities. Moody’s indicates that Rusal might improve its rating by reducing the Moody’s-adjusted debt/EBITDA to under 3.5x, continue generating positive free-cash flow, maintain solid liquidity, and follow a conservative financial policy. The rating would likely fall should the debt/EBITDA stay above 4.5x, operating performance falls off, or if liquidity decreased and the firm became unable to meet debt maturities on a timely basis.