The credit rating of “KuibyshevAzot” PJSC (hereinafter, KuibyshevAzot, the Company, the Group) is based on high assessment of the operational risk profile in view of the strong business profile, high level of corporate governance, strong geographical diversification, and medium market position. The financial risk profile takes into account high profitability, low leverage, high coverage, strong liquidity, and the medium size of the Company.
The credit rating outlook has been changed to Stable to reflect an increase in the volume of the Company’s investment program for 2024–2026, which, on the back of price correction on nitrogen fertilizers and continuance of dividend payments, may increase the leverage and affect cash flow metrics in the forecast period of 2024–2026.
KuibyshevAzot is one of the major enterprises of the Russian chemical industry. The Company is a leader 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 strong business 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, while 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 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.
Medium profitability. The FFO before net interest and tax margin was 40.4% in 2022 compared to 33% a year earlier. At the same time, in H1 2023, the margin declined to 29.6% on the back of changing world prices.
Low leverage and high coverage. The ratio of the Company’s total debt to FFO before net interest was 0.6x in 2022 against 0.9x in 2021. Debt obligations include loans from the largest Russian banks. The portfolio is balanced in terms of both durations (the share of long-term loans is 63%) and currencies / interest rates (76% of liabilities is denominated in rubles). Loans are borrowed at fixed and floating rates. In the forecast period (starting from 2025), the leverage is expected to grow. Loans are planned to be used to finance the investment program, which may result in the ratio of total debt to FFO before net interest exceeding 1.0x. The coverage (the ratio of FFO before net interest to interest) was 24.7x in 2022 vs 22.8x in 2021.
Strong liquidity and high capex. 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 2022, FCF margin was 17% vs 23.3% a year earlier. At the same time, the Agency expects the margin to become negative in the forecast period of 2023–2026 due to significant capital investments. Weighted FCF margin will amount, according to the Agency’s calculations, to -2.6%.
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 2023–2026.
Potential outlook or rating change factors
The Stable outlook assumes that the rating will highly likely stay unchanged within the 12 to 18-month horizon.
A positive rating action may be prompted by:
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Weighted average FFO before interest and tax margin exceeding 30%;
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Weighted FCF margin increasing to positive values.
A negative rating action may be prompted by:
- Weighted average ratio of total debt to FFO before net interest exceeding 1.0x, and weighted average ratio of FFO before net interest to net interest falling below 10.0x.
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.
