The ‘A’ rating indicates high credit capacity of the Company. Risk of a delay in meeting liabilities is relatively low, restructuring risk for the loan / part of the loan is minimal.
Southern Kuzbass Coal Company OAO (hereinafter referred to as the issuer / enterprise) is one of the principal structural units of OJSC Mechel-Mining, Mechel Group’s coal-mining holding.
The enterprise is one of the coal mining leaders both regionally (in the Kuznetsk Basin) and countrywide. It accounts for about 3.7% of all the coal produced in the Russian Federation. More than 60% of its final products output are metallurgical coals which are most in-demand in domestic and foreign markets. Apart from coal-mining capacities, the company has coal-processing (coal beneficiation) enterprises. Exports account for about 45% of its goods. As a whole, the company’s firm market position coupled with the high business diversification produces a positive impact on the credit score.
Another argument for the rating score is the steady improvement in the principal structural elements of the balance sheet. The company’s assets as of 1/1/2012 exceeded RUB 100 billion increasing by 20% year-on-year and by 36% since 2009. Equity capital of the company showed an even more impressive growth of 43% and 116%, respectively, reaching RUB 46.24 billion At the end of 2011. Equity to total assets ratio is 43%, which is fairly high as compared with the average value across the company’s industry segment. Over the last two days, this indicator increased more than by 50%.
The operational KPIs of Southern Kuzbass Coal Company OAO are also improving. Its revenue (RAS) for 2011 was RUB 43.43 billion increasing by 24% against the previous accounting period. Sales profit grew by 27% surpassing the RUB 20 billion mark for the first time. At the same time, the revenue growth was mainly driven by the growing selling prices over the last two years, while the production and sales volume grew insignificantly. This exerts pressure on the general credit score of the issuer.
The company’s credit rating is also supported by its high liquidity and profitability.
Over a long period of time (excluding the recessionary year 2009), the company’s sales margin has been fluctuating from 33 to 48%. Over the last two years, it has been within the 45-46% range which is above its competitors across the industry. The same is with the net profit margin (0.31-0.32). Return on assets is 14.2% exceeding the related average industry result (8.4%) by over a half.
Liquidity of the enterprise is above the industry-specific and general economic levels. As of 1/1/2012, absolute liquidity ratio was 2.33, intermediate liquidity ratio was 3.08, current liquidity ratio was 3.20.
As a whole, the improving profit coupled with the high profitability and liquidity of assets supports the company’s credit rating.
An essential risk factor restricting the credit rating is the relatively high debt burden (84% of it being bank loans). As of 1/1/2012, the company’s payables on bank loans were RUB 52 billion, or 48% of its total balance. The company’s debt exceeds its annual revenue for the last accounting period1.2-fold. The average net CFO (for the last two years) covers only 50% of the company’s short-term debt. At the same time, the availability of financial reserves (including the loans provided by the company cumulatively exceeding the company’s liabilities) ensures that the company will meet its debt liabilities, at least in the short term.
The situation in the domestic and global market of metallurgical and power-generating coals assuming that the prices might be affected by both general economic forces and natural / technogenic disasters also generates essential risks for the company’s activity. Should the selling prices for coal fall steeply, the enterprise may find it quite a challenge even to preserve the current financial performance, which may additionally affect the credit capacity of the issuer.
Southern Kuzbass Coal Company OAO is one of the leading suppliers of coking and power-generating coals to the domestic and global market. It has all the necessary licenses for coal mining activities in the region.

This press release is based on the statement of assigning a credit quality rating to Southern Kuzbass Coal Company OAO.
The rating score, along with any information and conclusions provided in this press release, only conveys our opinion on the Company's reliability and shall not be considered as advice on the purchase and sale of securities or the provision of loan facilities to the Company.
AK&M Rating Agency will not incur any responsibility for any interpretations, inferences and consequences related to the application of results of the rating estimation procedure by any third parties.
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Press release by: A.V. Khibukhin
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