The credit rating of “KuibyshevAzot” PJSC (hereinafter, KuibyshevAzot, the Company, the Group) reflects a high assessment of the operational risk profile due to a very strong business profile, high level of corporate governance, strong geographical diversification, and medium market position. The financial risk profile takes into account a high profitability assessment, low leverage, very high coverage, strong liquidity assessment, and the medium size of the Company.
The change in the credit rating outlook to "Positive" reflects ACRA's expectations for further reduction of the Company's leverage against the background of favorable market conditions. According to the Agency's estimates, world prices for nitrogen fertilizers and caprolactam will remain high in 2023–2024, mainly due to high gas prices, especially in Europe. This will allow the Company to generate high cash flow, which will be sufficient both to reduce the leverage below 1.0x of the ratio of total debt to FFO before net interest, and to improve the FCF margin and maintain it at a level above 2%, along with significant amounts of planned capital investments.
KuibyshevAzot is one of the leading enterprises of the Russian chemical industry. The Company holds a leading position in the production of caprolactam and polyamide in Russia, the CIS and Eastern Europe, and it is also the largest manufacturer of technical and textile yarns, cord fabric, polyamide and blended fabrics in Russia. The Group's production sites are located in the Russian Federation (in the Samara, Kursk and Saratov Regions), as well as in Germany and China.
Key assessment factors
The very strong operational risk profile is based on the Company's low production costs compared to competitors in the global market. In addition to using the available raw material base (purchase of raw materials at domestic prices), the Group applies energy-efficient production technologies (in particular, in the production of cyclohexanone) and actively develops its own production of components necessary for higher product conversions. The product line is well diversified (the share of the largest product does not exceed 30%), and a flexible production model allows the Company to quickly change the structure of the product range depending on the prevailing market conditions and demand. The technological production efficiency is high due to the availability of capacities for deep processing of caprolactam, as well as for production of ammonia and nitrogen fertilizers, which result a significant share of products with high added value in the revenue structure. The Company holds a leading position in the production of caprolactam (by the end of 2021, the share was 54%) and polyamide (the share was 99.8%), and it is also a successful player in the fertilizer market. In the segment of ammonia and nitrogen fertilizers, the Company is among the top ten enterprises of the domestic industry, producing 4.6% of nitrogen fertilizers in Russia. The high score for geographical diversification is due to a significant share of exports, which accounted for more than 40% of total sales in 2021. The main export destinations are the countries of Latin America, Africa, Asia, the Middle East, Europe and the CIS, but the Russian market is a priority for the Company. The high level of corporate governance takes into account the Group's consistent strategy aimed at developing production capacities and enhancing processing depth, and the multi-level risk management and internal control system integrated into the Group's key processes, as well as the management structure presented by the board of directors and the board committees on audit, personnel and remuneration, social policy, strategic development and corporate governance, shareholder and public relations. The Group's structure includes manufacturing companies, logistics assets, distribution network, and trading companies located in various regions. The Company publishes its IFRS financial statements, as well as discloses its key production metrics.
Medium size and high profitability. The FFO before net interest and taxes amounted to RUB 29 bln by the end of 2021. The weighted value of this indicator for 2020–2025 is in the range of RUB 5–30 bln, which is estimated as a medium level for the Russian corporate segment. The FFO before net interest and tax margin was 33% in 2021 compared to 19% a year earlier. This growth is due to favorable market conditions: increase in gas prices and shutdown of multiple nitrogen fertilizer production assets in Europe, as well as recovery in demand led to a record increase in prices for ammonia and nitrogen fertilizers. Against the background of continuing high prices, the margin continued to grow in H1 2022 and reached 46%.
Low leverage and very high coverage. The ratio of the Company's total debt to FFO before net interest was 0.9x in the end of 2021 versus 3.1x in 2020. The weighted value of this indicator for 2020–2025 is 1.3x, which corresponds to a low level of leverage. The improvement in the indicator was achieved by reducing the total debt by RUB 5 bln, as well as increasing FFO before net interest. The Company's loan portfolio is diversified both by lender and by the currency of liabilities (about 60% of liabilities are denominated in rubles, the rest — in US dollars and euros). The portfolio structure is dominated by long-term liabilities with a comfortable repayment schedule. Loans were borrowed at fixed and floating interest rates. The coverage (the ratio of FFO before net interest to interest) was 22.8x in 2021 versus 6.27x in 2020.
Strong liquidity and below medium cash flow. The Company has a comfortable and smooth debt repayment schedule in the medium term (without peak repayments), as well as diversified sources of internal and external funding (positive FFO, significant account balances, as well as free limits on credit lines). In 2021, FCF margin was 23.3% compared to 6.2% a year earlier. The Agency expects a decrease in the margin in the forecast period of 2023–2025 (in view of expected capital investments) and sustainably positive values of the weighted FCF margin.
Key assumptions
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Attaining the production targets by the Company.
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Implementation of the investment program as planned by the Company.
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Dividend payouts at no more than 30% of RAS net profits in 2022–2025.
Potential outlook or rating change factors
The Positive outlook assumes that the rating will most likely be upgraded within the 12 to 18-month horizon.
A positive rating action may be prompted by:
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The weighted average FFO before interest and tax margin exceeding 30%;
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The weighted average ratio of total debt to FFO before net interest remaining below 1x for a long term.
A negative rating action may be prompted by:
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The weighted average FFO before net interest and tax margin declining below 20%, and the weighted average FCF margin decreasing below 0%;
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The weighted average ratio of total debt to FFO before net interest exceeding 2.0x, and the weighted average ratio of FFO before net interest to net interest falling below 5.0x.
Rating components
SCA: a+.
Support: no.
Issue ratings
There are no outstanding issues.
Regulatory disclosure
The credit rating have been assigned to "KuibyshevAzot" PJSC 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 "KuibyshevAzot" PJSC was published by ACRA for the first time on December 3, 2019. The credit rating of "KuibyshevAzot" PJSC and its outlook are expected to be revised within one year following the publication date of this press release.
The credit rating was assigned based on the data provided by "KuibyshevAzot" PJSC, information from publicly available sources, as well as ACRA’s own databases. The credit rating is solicited, and "KuibyshevAzot" PJSC 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 additional services to "KuibyshevAzot" PJSC. No conflicts of interest were identified in the course of the rating process.
