The credit rating of JSC “MCC “EuroChem” (hereinafter, JSC “MCC “EuroChem”, or the Company) is based on its strong business profile, very strong geographic diversification, very high corporate governance, very large size, very high profitability, coverage and liquidity indicators, as well as low leverage and a high cash flow assessment.
ACRA has changed the credit rating outlook to Positive to reflect its expectations for the improvement of the Company’s financial risk profile, including lower leverage, developing foreign assets, and stronger market positions.
JSC “MCC “EuroChem” is the main production unit of EuroChem Group (hereinafter, the Group, EuroChem Group, or EuroChem). Given the fact that the Company accounts for most of the assets and cash flow of EuroChem Group, ACRA used the Group’s consolidated indicators to assess the Company’s creditworthiness. EuroChem Group is one of the five largest global fertilizer producers. The Group produces nitrogen, phosphate, potash and complex fertilizers, and operates in the iron ore concentrate and organic synthesis product supply segment.
key assessment factors
The strong operational risk profile assessment is based on the very low production costs of the Group compared to global market competitors due to the existing vertically integrated business model, which includes raw material stocks, finished product manufacture, logistics infrastructure, and distribution, as well as a flexible production model with a highly diversified product line. The 2022 revenues were generated, in particular, by the nitrogen segment (36%), complex fertilizers (19%), phosphate fertilizers (14%), and potash fertilizers (15%). The very high assessment of the Sales Markets Accessibility and Diversification sub-factor is determined by the share of exports in the Group's sales that exceeds 80%. By the end of 2022, the largest markets by the share of sales were: South America (34%), Europe (20%), North America (19), Russia (14%), Asia-Pacific region (12%). The structure of production assets is well diversified, most of them are located in the coastal regions of Russia, in close proximity to seaports.
Low leverage and very high coverage assessments. When calculating leverage indicators, ACRA adjusted the size of debt for the size of project debt. According to ACRA’s assessment, weighted average adjusted total debt to FFO before net interest for 2020–2025 will amount to 1.3x, which corresponds to low leverage. This indicator has declined due to a gradual decrease in the Company’s total debt thanks to repayments and prepayments, as well as due to an increase in FFO before net interest. The Company debt portfolio structure is balanced and includes various finance instruments (bank loans, bonds denominated in rubles and foreign currencies); 80% of liabilities are long-term, most of them are denominated in rubles. The ratio of FFO before net interest to interest amounted to 12.1x in 2022, and the weighted average ratio for 2020–2025 is estimated at 10.2x.
High cash flow assessment. ACRA adjusted capital expenses by the size of project financing when calculating cash flow indicators. ACRA estimates weighted average free cash flow (FCF) profitability for the period from 2020 to 2025 at 12.3% taking into account the adjustment, while the weighted average ratio of capital expenditures to revenues will be 12.8%. The Company’s sources of internal and external financing are diversified and include a sustainably positive operational cash flow, issues on public debt markets, and a significant volume of available limits under committed credit lines. The Group does not pay dividends and adheres to a strategy of reinvesting FCF in current investment projects.
KEY ASSUMPTIONS
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No dividend payments in 2023–2025.
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Investment program being implemented according to the Group’s plans.
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No new sanctions and regulatory restrictions.
POTENTIAL OUTLOOK OR RATING CHANGE FACTORS
The Positive outlook assumes that the rating will highly likely be upgraded within the 12 to 18-month horizon.
A positive rating action may be prompted by:
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Weighted average ratio of total debt to FFO before net interest falling below 1x;
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Further strengthening of the Group’s market positions.
A negative rating action may be prompted by:
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Weighted average ratio of total debt to FFO before net interest exceeding 2x coupled with weighted average FFO ratio before net interest to interest declining below 10x;
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Weighted average FFO before net interest and taxes margin and weighted average FCF margin falling below 30% and 5%, respectively.
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Weighted average FCF margin falling below 2%.
RATING COMPONENTS
Standalone creditworthiness assessment (SCA): aa+.
Adjustments: none.
ISSUE RATINGS
JSC “MCC “EuroChem”, series BO-001P-07 (RU000A101L96), maturity date: April 10, 2025, issue volume: RUB 10 bln — AA+(RU).
JSC “MCC “EuroChem”, series BO-001P-08 (RU000A101LJ0), maturity date: April 15, 2025, issue volume: RUB 25 bln — AA+(RU).
Rationale. The issues represent senior unsecured debt of JSC “MCC “EuroChem”. Due to the absence of either structural or contractual subordination of the issues, ACRA regards them as pari passu to other existing and future unsecured and unsubordinated debt obligations of the Company. According to ACRA’s methodology, a simplified approach is applicable, so that the credit ratings of the issues are equivalent to that of JSC “MCC “EuroChem”, i.e. AA+(RU).
regulatory disclosure
The credit ratings have been assigned to JSC “MCC “EuroChem” and the bond issues (RU000A101L96, RU000A101LJ0) 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 Methodology for Assigning Credit Ratings to Issues of Financial Instruments on the National Scale for the Russian Federation was also applied to assign credit ratings to the above issues.
The credit rating of JSC “MCC “EuroChem” and the credit ratings of the bond issues (RU000A101L96, RU000A101LJ0) were published by ACRA for the first time on December 1, 2020 and December 4, 2020, respectively. The credit rating and its outlook and the credit ratings of the bond issues (RU000A101L96, RU000A101LJ0) are expected to be revised within one year following the publication date of this press release.
The credit ratings were assigned based on data provided by EuroChem Group and JSC “MCC “EuroChem”, information from publicly available sources, and ACRA’s own databases. The credit ratings are solicited, and EuroChem Group and JSC “MCC “EuroChem” participated in their assignment.
In assigning the credit ratings, ACRA used only information, the quality and reliability of which were, in ACRA’s opinion, appropriate and sufficient to apply the methodologies.
ACRA provided no additional services to EuroChem Group and JSC “MCC “EuroChem”. No conflicts of interest were discovered in the course of credit rating assignment.
