The credit rating of Azot GC JSC (hereinafter, Azot, the Company, or the Group) is due to a strong operational risk profile assessment, large business size, very high profitability, low leverage, high debt coverage, medium cash flow, and medium liquidity assessment.
Azot is one of the five largest producers of mineral fertilizers in Russia, and is also one of the country’s three largest producers of caprolactam. The Group’s main production assets are concentrated in Eastern Siberia (Azot KAO, Angarsk Nitrogen Fertilizer Plant LLC), Tatarstan (Ammonium JSC) and Bashkortostan (Meleuzov Mineral Fertilizers JSC). The Company produces about 12% of the total volume of nitrogen fertilizers in Russia, 33% of caprolactam, and 30% of ammonium sulfate produced in the country.
KEY ASSESSMENT FACTORS
The Company’s operational risk profile is assessed as strong due to the very low production costs compared to competitors in the global market, flexible production model, and diversified product line. The Group’s market position is assessed as medium as the Company successfully operates in both the highly concentrated caprolactam market and in the moderately concentrated nitrogen fertilizer market. The availability and diversification of the Group’s sales markets are assessed estimated as high — the share of exports in the Company’s revenues is around 50%. The structure of production assets is moderately diversified.
Azot’s corporate governance system generally complies with global practices. The management structure includes audit, strategy, HR and remuneration, and digitalization committees. The Group has built a risk management system. The Company has a complicated structure, but transactions with related parties are economically justified and carried out as part of industrial cooperation. Financial transparency is assessed as adequate. Azot publishes consolidated IFRS reporting on an annual and semi-annual basis.
Large size of business and very high profitability. In 2023, according to the Agency’s calculations, FFO before net interest payments and taxes amounted to around RUB 45 bln, and the weighted average value of the indicator from 2021 to 2026 is equal to RUB 54 bln, which corresponds to a large business size according to ACRA’s methodology. The FFO margin before interest payments and taxes was 40.6% in 2023 vs. 55.4% a year earlier (this decline is due to price adjustments on the global nitrogen fertilizer market). Over the forecast period (2024–2026), ACRA assumes that the Company’s profitability will remain very high at 39–41%.
Low leverage and high debt coverage. The Agency estimates that the weighted average ratio of total debt to FFO before net interest payments is 1.4x for 2021 to 2026 (vs. 1.8x for 2020–2025), which corresponds to low leverage. The improvement in the indicator is due to a decrease in the Company’s total debt in 2023. The Group’s loan portfolio is represented by bank loans and bond issues. Liabilities are denominated in rubles and have been attracted mainly at floating rates. ACRA notes off-balance sheet obligations and concentration on lenders — the main lender of the Company is VTB Bank (PJSC) (AAA(RU), outlook Stable).
The Agency estimates the weighted average ratio of FFO before net interest payments to interest payments for 2021 to 2026 at 5.4x.
Medium cash flow assessment. ACRA estimates the weighted average FCF margin for 2021 to 2026 at 6.4%, and the weighted average ratio of capital expenditures to revenues at 23.7%. The change in indicators compared to the data at the time of the previous rating action is due to the Company’s plans to implement a large-scale investment program. In 2024, the Group’s capital expenditures are expected to grow, while in 2025–2026 they will peak, which will lead to the FCF margin turning negative. To finance its expenditures, the Company plans to borrow and use funds from operations and the repayment of loans issued earlier to one of the shareholders.
KEY ASSUMPTIONS
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Prices for urea (FOB Baltic) and ammonium nitrate (FOB Baltic) in the range of USD 300–340 per ton and USD 225–243 per ton in 2024–2026, respectively;
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No dividend payments in 2024–2026;
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Average annual USD/RUB exchange rate at 91–95 in 2024–2026;
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Implementation of the capital investment program in line with the Group’s plans.
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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The weighted average ratio of total debt to FFO before net interest payments declining below 1.0x and the weighted average ratio of FFO before net interest payments to interest payments exceeding 10.0x;
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FFO before net interest payments and taxes exceeding RUB 100 bln and a better liquidity assessment.
A negative rating action may be prompted by:
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The weighted average ratio of FFO before net interest payments to net interest payments declining below 5.0x;
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Significant negative changes in the taxation of the industry.
RATING COMPONENTS
Standalone creditworthiness assessment (SCA): a+.
Adjustments: none.
ISSUE RATINGS
No outstanding issues have been rated.
REGULATORY DISCLOSURE
The credit rating has been assigned to Azot GC JSC 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 Azot GC JSC was published by ACRA for the first time on February 9, 2023. The credit rating 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 data provided by Azot GC JSC, information from publicly available sources, and ACRA’s own databases. The credit rating is solicited and Azot GC JSC participated in its assignment.
In assigning the credit rating, ACRA used only information, the quality and reliability of which were, in ACRA’s opinion, appropriate and sufficient to apply the methodologies.
ACRA provided additional services to Azot GC JSC. No conflicts of interest were discovered in the course of credit rating assignment.
