The credit rating of UC RUSAL, IPJSC (hereinafter, RUSAL, or the Holding) has been affirmed because the credit metrics have remained within the ranges established for this rating level. The increase in the production costs of metal (mainly due to restrictions on the supply of alumina from some of the Holding’s assets) had a negative impact on the operating cash flow in 2023. At the same time, the Holding was able to reduce the absolute value of debt by almost USD 1.6 bln. Given the combination of these factors, although leverage remains high, it is within the acceptable value for the current rating level. At the end of 2023, RUSAL entered into an agreement on acquiring a share in an alumina producer in China, which in the future will ensure the stability of raw material supply and have a positive impact on the Company’s financial results.
The Holding’s credit rating is driven by its strong market position as a global aluminum manufacturer, and strong business profile assessment, which in turn is driven by the low production costs of aluminum and a vast resource base. At the same time, the product diversification assessment is below medium, since RUSAL focuses exclusively on the production of aluminum and aluminum alloys. The credit rating is supported by the very strong assessment of geographic diversification of sales and the high level of corporate governance, as well as the very high score for the Concentration on a Single Field sub-factor. The Holding’s rating is constrained by the high score for leverage.
RUSAL is one of the world’s largest manufacturers of aluminum with a low carbon footprint, aluminum products, and aluminum alloys. RUSAL is a vertically integrated holding that controls the entire chain of aluminum production — from the extraction of bauxite and nepheline ores to the smelting of aluminum. Bauxite mining and alumina production assets are located in Russia and abroad. The main aluminum smelters are located in Siberia, in close proximity to sources of relatively cheap (compared to other global aluminum producers) electricity generated by power plants based on renewable energy sources.
key assessment factors
The strong business profile reflects the Holding’s strong positions in a number of sub-factors, such as production costs and resource base adequacy. The production costs of aluminum for the Holding are in the first quintile of the global cost curve, which is largely due to relatively cheap electricity. The bauxite reserves (proven and probable) of the Holding’s mining operations, as confirmed by an international audit, amount to about 2 bln tons, which, taking into account the current production rate, guarantees more than 100 years of operations. Existing mining assets help cover the most of the Holding’s needs for alumina and ore. The Product Diversification sub-factor score is below medium because aluminum, albeit in various commodity forms, is the Holding’s only product.
The very strong assessment of the geographic diversification of sales takes into account the significant share of exports in revenues (over 70%), as well as the geographic diversification of assets, especially in bauxite mining and alumina production. RUSAL’s smelters, most of which are located in Russia, have a total installed capacity of 4.2 mln tons of aluminum per year. The total capacity of bauxite mining companies exceeds 20 mln tons of ore per year, and the total capacity of alumina production assets is about 10 mln tons per year.
The high assessment of corporate governance is a result of high scores for the following sub-factors: Governance Strategy, Risk Management, Management Structure, Group Structure, and Financial Transparency.
The financial risk profile assessment takes into account the Holding’s large business size (absolute FFO before net interest payments and taxes is over RUB 100 bln) and high profitability (the weighted FFO margin before interest and taxes is 13.7%). ACRA considers the decrease in profitability in 2023 as technical and caused by restrictions in the supply of alumina. The Holding’s leverage remains high (the ratio of total debt to FFO before net interest payments amounted to 12.0x in 2023 vs. 4.7x in 2022). ACRA assumes that leverage will decline to 4.8x in 2024, due to both the recovery of operating cash flow and a further reduction in the absolute value of debt. The coverage score has remained medium: the ratio of FFO before net interest payments to interest payments amounted to 1.5x in 2023 vs. 4.5x in 2022. ACRA expects this ratio to recover to 3.8x this year due to improvement of the operating cash flow.
The liquidity score is high due to a sufficient volume of cash in the Holding’s accounts and undrawn credit lines with banks. According to the Agency’s estimates, total liquidity is sufficient to cover upcoming repayments this year. ACRA notes an improvement in the balance of the debt load — the share of the loan portfolio denominated in US dollars decreased due to an increase in the share of debt in Chinese yuan, while the Holding’s revenues in yuan increased. Consequently, the balance of the loan portfolio in terms of currencies and rates has improved.
The medium cash flow score is underpinned by the medium free cash flow margin and a high score for the capital expenditure to revenue ratio. The Holding’s investment program largely depends on the long-term ESG program, which gives it certain flexibility in adjusting its investment timeline depending on global market conditions.
KEY ASSUMPTIONS
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Annual average aluminum price at USD 2,400/t in 2024–2026;
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Production volume in line with the Holding’s business plan;
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Capital expenditures in line with the Holding’s business plan;
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Conservative dividend payments due to the priority of reducing the leverage.
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:
- The Holding’s leverage (weighted average ratio of total debt to FFO before net interest payments) falling below 3.5x and maintaining high liquidity and cash flow.
A negative rating action may be prompted by:
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Weighted leverage exceeding 5.0x;
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Weighted coverage (the ratio of FFO before net interest to interest) falling below 2.5x.
RATING COMPONENTS
Standalone creditworthiness assessment (SCA): a+.
Support: none.
ISSUE RATINGS
UC RUSAL IPJSC, uncertificated exchange-traded interest-bearing non-convertible bonds subject to centralized title registration, series BO-001Р-01 (RU000A105C44), maturity date: April 24, 2025, issue volume: CNY 6 bln — A+(RU).
UC RUSAL IPJSC, uncertificated exchange-traded interest-bearing non-convertible bonds subject to centralized title registration, series BO-001Р-02 (RU000A105PQ7), maturity date: December 23, 2025, issue volume: CNY 1 bln — A+(RU).
UC RUSAL IPJSC, uncertificated exchange-traded interest-bearing non-convertible bonds subject to centralized title registration, series BO-001Р-03 (RU000A105Q06), maturity date: December 24, 2025, issue volume: CNY 3 bln — A+(RU).
UC RUSAL IPJSC, uncertificated exchange-traded interest-bearing non-convertible bonds subject to centralized title registration, series BO-05 (RU000A105104), maturity date: July 28, 2027, issue volume: CNY 2 bln — A+(RU).
UC RUSAL IPJSC, uncertificated exchange-traded interest-bearing non-convertible bonds subject to centralized title registration, series BO-06 (RU000A105112), maturity date: July 28, 2027, issue volume: CNY 2 bln — A+(RU).
UC RUSAL IPJSC, uncertificated exchange-traded interest-bearing non-convertible bonds subject to centralized title registration, series BО-001Р-04 (RU000A106V57), maturity date: September 5, 2025, issue volume: AED 370 mln — A+(RU).
UC RUSAL IPJSC, uncertificated exchange-traded interest-bearing non-convertible bonds subject to centralized title registration, series BО-001Р-05 (RU000A1076U8), maturity date: May 8, 2026, issue volume: CNY 600 mln — A+(RU).
UC RUSAL IPJSC, uncertificated exchange-traded interest-bearing non-convertible bonds subject to centralized title registration, series BО-001Р-06 (RU000A107RH8), maturity date: August 5, 2026, issue volume: CNY 1 bln — A+(RU).
Rationale. The issues are senior unsecured debt instruments of UC RUSAL, IPJSC. Due to the absence of either structural or contractual subordination of the issues, ACRA regards them as equal to other existing and future unsecured and unsubordinated debt obligations of the Company. According to ACRA’s methodology, in determining the credit rating of the issues, the detailed approach was applied to estimate the recovery rate for the unsecured debt (category I). Given the recovery rate, the credit rating of the issues is equal to the credit rating of UC RUSAL, IPJSC.
REGULATORY DISCLOSURE
The credit ratings of UC RUSAL, IPJSC and the bond issues of UC RUSAL, IPJSC (RU000A105C44, RU000A105PQ7, RU000A105Q06, RU000A105104, RU000A105112 RU000A106V57, RU000A1076U8, RU000A107RH8) have been assigned 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 Financial Instruments under the National Scale for the Russian Federation was also applied to assign the credit rating to the above issues.
The credit ratings of UC RUSAL, IPJSC and the bond issues of UC RUSAL, IPJSC (RU000A105C44, RU000A105PQ7, RU000A105Q06, RU000A105104, RU000A105112, RU000A106V57, RU000A1076U8, RU000A107RH8) were published by ACRA for the first time on May 27, 2022, October 27, 2022, December 27, 2022, December 28, 2022, August 3, 2022, August 3, 2022, September 8, 2023, November 10, 2023, and February 7, 2024, respectively. The credit rating of UC RUSAL, IPJSC and its outlook and the credit rating of the bond issues of UC RUSAL, IPJSC (RU000A105C44, RU000A105PQ7, RU000A105Q06, RU000A105104, RU000A105112, RU000A106V57, RU000A1076U8, RU000A107RH8) 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 UC RUSAL, IPJSC, information from publicly available sources, and ACRA’s own databases. The credit ratings are solicited and UC RUSAL, IPJSC 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 additional services to UC RUSAL, IPJSC. No conflicts of interest were discovered in the course of credit rating assignment.
