On February 3, 2022, JSC "ZTZ" (hereinafter, ZTZ, or the Company) announced that it had signed an agreement with JSC “HC “METALLOINVEST” (ACRA rating AA+(RU) outlook Positive) on the acquisition of 100% of the shares in JSC “Uralskaya Stal” (Novotroitsk, Orenburg Region). The deal is expected to close in February 2022. Although the size of the deal has not been officially disclosed, according to ACRA’s information, it will be significant compared to the current volume of ZTZ’s business.
ZTZ’s credit rating was affirmed at BBB+(RU), outlook Stable on May 17, 2021, and on the one hand, was based on the Company’s strong market position as one of the leading suppliers of large-diameter pipes (LDPs) in the Russian market, medium business profile and corporate governance, as well as low leverage and high interest coverage. On the other hand, the rating was constrained primarily by the below-average size of the Company’s business, weak geographic diversification, a low degree of vertical integration, and concentration on one plant.
ZTZ is one of the largest producers of LDPs in Russia. The Company’s main activity is production of electric-welded LDPs for oil and gas pipelines. The Company also produces polyurethane foam insulation pipes. In 2020, the Company’s revenues under RAS were RUB 33.4 bln compared to around RUB 45 bln in 2019, while sales of basic goods (LDPs) fell because of the postponement of major infrastructure projects and repair and maintenance work as a result of restrictions imposed due to the coronavirus pandemic. ZTZ is the key asset of the Company, and there are no other production assets. The Company has a staff of around 1,400 employees. The controlling stake (74.99%) is owned by ZTZ Holding Limited (an offshore company), whose ultimate beneficiary is D. G. Safin, CEO of the Company. 25% of shares are owned by LLC “Ksedos Invest”.
The “Rating under revision: developing” status reflects the need for ACRA to perform additional analysis of how the acquisition of JSC “Uralskaya Stal” will impact ZTZ’s leverage and business profile. According to existing information, the deal will have a material adverse impact on ZTZ’s credit metrics, which then may not be in line with those required for the Company’s current credit rating.
KEY ASSUMPTIONS
- High likelihood of completion of the deal.
potential outlook or rating change factors
The “Rating under revision: negative” status assumes that the rating may be downgraded within the next 90 days.
Removal of the “Rating under revision: negative” status and affirmation of the credit rating may be prompted by:
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A loan provided under comfortable conditions to carry out the deal to acquire JSC “Uralskaya Stal” coupled with the presentation of a financial model that confirms the organic integration of the acquired asset into ZTZ’s business model and provides for growth of consolidated operating profit and maintenance of the Company’s credit metrics at the level required to affirm the current rating;
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Rejection of the deal to acquire JSC “Uralskaya Stal”.
Removal of the “Rating under revision: negative” status and downgrade of the credit rating may be prompted by:
- Deterioration of credit metrics as a result of the asset purchase to a level that does not correspond with the current rating.
RATING COMPONENTS
Standalone creditworthiness assessment (SCA): bbb+.
Adjustments: none.
issue ratings
There are no outstanding issues.
regulatory disclosure
The credit rating has been assigned to JSC "ZTZ" under the national scale for the Russian Federation based on the Methodology for Credit Ratings Assignment to Non-Financial Corporations under the National Scale for the Russian Federation and the Key Concepts Used by the Analytical Credit Rating Agency within the Scope of Its Rating Activities.
The credit rating of JSC "ZTZ" was published by ACRA for the first time on May 22, 2019. The credit rating and its outlook are expected to be revised within 90 days following the publication date of this press release.
The credit rating was assigned based on data provided by JSC "ZTZ", information from publicly available sources, and ACRA’s own databases. The credit rating was assigned based on the RAS financial statements of JSC "ZTZ". The credit rating is solicited, and JSC "ZTZ" participated in its assignment.
In assigning the credit rating, ACRA used only information, the quality and reliability of which was, in ACRA’s opinion, appropriate and sufficient to apply the methodologies.
ACRA provided no additional services to JSC "ZTZ". No conflicts of interest were discovered in the course of credit rating assignment.
