Press Releases / 14.02.2012

Press Release as of 14.02.2012

JSC "KuibyshevAzot"

AK&M Rating Agency upgraded the credit rating of OJSC KuibyshevAzot to ‘A+' from ‘A' with a stable outlook as per the national scale.

CJSC AK&M Rating Agency upgraded the credit rating of OJSC KuibyshevAzot to ‘A+' from ‘A' with a stable outlook as per the national scale.

The ‘A+' rating qualifies OJSC KuibyshevAzot as a highly reliable borrower. Risk of a delay in meeting liabilities is insignificant.

One of the principal reasons for the high credit rating score is the well-balanced and stable position of OJSC KuibyshevAzot in the market. The company is a powerful player in the market of chemical goods, a leader in a number of items.

OJSC KuibyshevAzot is one of the 10 largest global producers of caprolactam leading in its production in the CIS and Eastern Europe. As of the end of 2011, the company accounted for 53% of the national caprolactam output, 98% of the polyamide-6 output, 46% of the cord fabric output, 96% of the cord thread output and 100% of the textile polyamide fiber output. Today, KuibyshevAzot is the leading manufacturer of polyamide-6 in the CIS and Eastern Europe and the only enterprise in the Russian Federation producing cord fabric on the bases of high tenacity yarns.

OJSC KuibyshevAzot is also in the top ten largest enterprise of the domestic nitrogen industry in the ammonia and nitrogen fertilizers output. According to the company's preliminary results for 2011 the company produces up to 5.7% of all the nitrogen fertilizers produced in the Russian Federation.

Export revenues accounted for about 63% in OJSC KuibyshevAzot's 2011 sales revenue. The high share of export (including advanced processing products) reduces the company's dependence on the domestic market, increases mobility of its production and marketing activities and proves the good balance and successful sales diversification.

One of the principal arguments for the rating score is the considerable increase in the profit and revenues of the company.

According to preliminary data, revenue (RAS) of OJSC KuibyshevAzot for 2011 increased by 48% year-on-year to RUB 31.2 billion. GP rose twice for the same period reaching almost RUB 11 billion. Gross margin ratio for 2011 was 35.2%.

In 2011, sales profit showed a more impressive growth rate increasing almost 2.6-fold year-on-year to RUB 7.9 billion. Pre-tax profit (EBT) for 2011 grew even faster reaching RUB 7.4 billion (3.2 times above the previous year's result). Finally, net profit was the growth leader in 2011 rising almost 3.4-fold to RUB 5.9 billion. Net profit margin on cost value for 2011 increased to 25.44% against 10.25% in 2010.

It will be especially noted that in 2011, all profit-related results surpassed the pre-crisis peak values 2008: sales revenue increased by almost 63%, GP 1.96-fold, sales profit 1.98-fold, pre-tax profit 2.3-fold, net profit almost 2.5-fold.

Another argument for the rating score is the reasonable and well-balanced borrowing policy pursued by OJSC KuibyshevAzot. As a whole, the company has a perfect credit history, our survey did not reveal a single instance of the company's default on its financial liabilities or any arrears. Today, there are no overdue payments in the company's liability profile.

At the same time, a steady downward trend in the cumulative debt of OJSC KuibyshevAzot established itself last year: as of the end of the third quarter 2011, the company's total loan debt decreased by almost 15% year-on-year and solely owing to the decreasing long-term liabilities. This naturally improved the long-term/short-term profile of the accounts payable.

Resulting from the sound loan profile balancing policy, the financial risk rate, the ratios of equity to total assets, debt to equity, debt to revenue, cash flow to liabilities, gross debt to EBITDA, short-term liabilities to EBITDA, interest coverage ratio and debt ratio improved by the end of the third quarter 2011.

In particular, interest coverage ratio (employing EBIT as a more stringent method) reached 12.72 by the end of the third quarter 2011, debt ratio decreased from 0.42 to 0.30, cash flow to liabilities ratio grew from 1.19 to 1.91.

As of the end of the third quarter 2011, long-term liabilities accounted for 67% and short-term liabilities for 33% of the total liabilities. The prevailing long-term obligations in the debt profile reduces the short-term debt burden increasing the financial soundness.

Today, therefore, the debt liabilities of OJSC KuibyshevAzot are decreasing in both relative and absolute terms, the debt profile improving at the same time.

Another argument for the rating score is the efficient ownership structure: OJSC KuibyshevAzot owns blocks of shares in a number of companies which can be structured in several groups: manufacturing enterprises, transport and sales enterprises, financial companies. This investment portfolio profile enables OJSC KuibyshevAzot to successfully solve a number of issues related to strengthening its positions in the market, expanding its activity, and optimizing its financial, transportation and manufacturing costs. This improves the financial flexibility of OJSC KuibyshevAzot removing the need to use external companies' services. Besides, financial investments in other enterprises enable the company to ramp up production, to increase diversification of activity through its interest in promising businesses and to strengthen the Company's positions in the respective markets, hence boosting KuibyshevAzot's potential for development and reducing its production and market risks.

An essential risk factor restrictive on the rating score is the persisting dependence of OJSC KuibyshevAzot's activity on gas prices, power rates and rail freight rates. The share of these costs in the cost value is high enough, and the growing rates and prices for gas, electric power and other power resources may affect KuibyshevAzot's competitive advantages. At the same time, these risks are decreasing as the Company is pursuing a policy of optimizing the gas purchase costs, developing logistics and water transportation operations, decreasing the power consumption of its production capacities and building up its own power generating capacities.

Another matter exerting pressure on the rating score is the dependence on the global market conditions. The company exports a large part of its goods and its financial soundness in many respects depends on the general economic trends influencing the demand and pricing in the markets of nitrogen fertilizers, caprolactam and polyamide.

The protectionist policy of the countries importing the Company's products pursued, in particular, to stimulate their own production (especially for nitrogen fertilizers) is also a risk factor related to the company's foreign trade activities. This policy may be toughened by setting new protective duties and quotas resulting in a rise of prices marketed by the Company and a drop in sales.

Besides, OJSC KuibyshevAzot's activity is rather vulnerable to currency risks. The share of exports in the company's income is high enough, which means heightened financial risks at by sharp exchange rate fluctuations. The share of loans and credits denominated in foreign currencies in the Company's total liabilities is not negligible, which adds to KuibyshevAzot's dependence on the foreign exchange markets.

OJSC KuibyshevAzot is the largest enterprise of the Russian chemical sector principally engaged in the production of ammonia, nitrogen fertilizers, caprolactam and its higher-level processing products. More than half of its products are exported. OJSC KuibyshevAzot's assets at the end of 3 quarters 2011 as per RAS totaled RUB 26.3 billion, revenue from sales of goods as of the end of 2011 was RUB 31.2 billion.

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This press release is based on the statement of assigning a credit quality rating to OJSC KuibyshevAzot.

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.

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.

AK&M Rating Agency is a leading independent national rating agency engaged in rating activities since 1993.

AK&M Rating Agency is accredited by the Ministry of Finance of the Russian Federation (order no. 452 as of September 17, 2010).

AK&M Ratings are recognized by the Central Bank of Russia (for providing unsecured lending facilities – Provision 323-P), Vnesheconombank (for granting subordinated loans) and SME Bank (for its program of lending to SME businesses), RUSNANO (when selecting banks to provide business banking services to project and engineering entities implementing investment projects), the MICEX (as a prerequisite for including bonds in the Corporate Bond Index / MICEX CBI and Municipal Bond Index / MICEX MBI calculation base, for listing bonds and for providing access to the MICEX+ trading mode). Pursuant to an order of Russia's Government AK&M Ratings count for approving the capitalization increase procedure for banks. Besides, AK&M Rating Agency is recognized by AHML and accredited by SRO National Securities Market Association.


CJSC Analysis, Consulting and Marketing Rating Agency

ul. Gubkina 3

Moscow, Russia

Press release by: A.G. Chumachenko

Phone no. (495) 916-70-30, fax no.: (499) 132-69-18