The credit rating of JSC “MCC “EuroChem” (hereinafter, JSC “MCC “EuroChem”, or the Company) is based on its strong market position and business profile, very strong geographic diversification, and very high corporate governance. The financial risk profile assessment takes into account the very large size of the Company, very high liquidity, high indicators for profitability and interest payment coverage, as well as the low leverage and strong cash flow assessment.
ACRA has changed the credit rating outlook from Positive to Stable due to the decline in global fertilizer prices, which led to a reduction of FFO and lower scores for profitability and debt service. At the same time, the Agency expects the Company’s market position to improve, including due to strengthening in the South American markets.
JSC “MCC “EuroChem” is the main production unit of EuroChem Group (hereinafter, the Group, or EuroChem Group). Given the fact that JSC “MCC “EuroChem” 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 (thanks 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. In 2023, revenues were generated, in particular, by the nitrogen segment (34%), complex fertilizers (12%), phosphate fertilizers (20%), and potash fertilizers (18%). The very high assessment of the Sales Markets Accessibility and Diversification sub-factor is explained by the share of exports in the Group’s sales exceeding 85%. By the end of 2023, the largest markets by the share of sales were South America (42%), Europe (17%), North America (16%), Russia (13%), and the Asia-Pacific region (10%). The structure of production assets is well diversified, most of them are located in the coastal regions of Russia, in close proximity to ports. The strong assessment of the Company’s market position takes into account its standing as one of the world’s largest producers of fertilizers, which is represented in the three main market segments (nitrogen, phosphate and potassium fertilizers), has its own distribution network, and sells products in key regions around the world.
Low leverage and high coverage assessments. When calculating leverage indicators, ACRA adjusted the size of debt for the size of project debt. According to ACRA’s estimates, the ratio of weighted average adjusted total debt to FFO before net interest payments for 2021–2026 will amount to 1.5x, which corresponds to low leverage. FFO before net interest payments to interest payments was 5.2x in 2023, and the weighted average for 2021 to 2026 is estimated at 7.2x. These indicators have declined due FFO before net interest falling and the Bank of Russia’s key rate growing to 16%. The Company’s debt portfolio structure is balanced and includes various finance instruments (bank loans and bonds); around half of liabilities are long-term, most of them are denominated in rubles.
High cash flow assessment. ACRA adjusted capital expenditures by the size of project financing when calculating cash flow indicators. ACRA estimates weighted average free cash flow (FCF) margin at 4.6% from 2021 to 2026, taking into account the adjustment, while the weighted average ratio of capital expenditures to revenues is 14.1%. The Company’s sources of internal and external financing are diversified and include a sustainably positive operational cash flow, bond issues in 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
-
No dividend payments in 2024–2026;
-
Investment program being implemented according to the Group’s plans;
-
No new sanctions and regulatory restrictions.
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:
-
Weighted average ratio of total debt to FFO before net interest payments falling below 1x coupled with the weighted average ratio of FFO before net interest payments to interest payments growing above 10x;
-
Weighted average FFO margin before interest and taxes exceeding 30% and weighted average FCF margin growing above 10%.
A negative rating action may be prompted by:
-
Weighted average ratio of FFO before net interest payments to interest payments falling below 5x;
-
Weighted average FFO margin before net interest and taxes and weighted average FCF margin falling below 20% and 5%, respectively;
-
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 equal to other existing and future unsecured and unsubordinated debt obligations of the Company in terms of priority. According to ACRA’s methodology, the simplified approach is applicable, and therefore credit rating of the issues is 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) of JSC “MCC “EuroChem” 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 under the National Scale for the Russian Federation was also applied to assign the credit rating to the above issues.
The credit ratings of JSC “MCC “EuroChem” and the bond issues (RU000A101L96, RU000A101LJ0) of JSC “MCC “EuroChem” 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 rating of the bond issues 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.
