The credit rating of Public Joint Stock Company Magnitogorsk Iron & Steel Works (hereinafter, MMK or the Company) has been affirmed since the operational risk profile assessment and the credit metrics of the financial profile have remained within the ranges established for this rating level.

The credit rating reflects the Company’s strong market position and strong business profile, which in turn are related to a significant share of products with high added value in the Company’s sales, as well as the strong diversification of the Company’s product portfolio. The medium assessment of the Degree of Vertical Integration sub-factor constrains the assessment of MMK’s business profile, while the very high assessment of the financial risk profile supports the credit rating.

MMK is one of the largest metal holdings in Russia with one of the widest product portfolios of steel products, ranging from semi-finished products to products with high added value, including cold-rolled and galvanized sheets used in automotive industry, as well as thick plates made using 5000 rolling mills and used in pipe industry, mechanical engineering, bridge building, etc. MMK’s main steelmaking and rolling facilities are located in Russia and Turkey.

key assessment factors

The strong market position stems from the fact that MMK holds a high share in the Russian market (around 18% in 2023). The Company holds leading positions in the Russian market in such premium product segments as cold-rolled, galvanized and polymer-coated rolled products. MMK is the sole manufacturer of tinplate in the country.

The strong business profile reflects the Company’s strong positions in a number of sub-factors, such as Share of Products with High Added Value and Characteristics and Diversification of Sales Markets.  According to ACRA’s calculations, the share of MMK’s products with high added value amounted to 49% of consolidated revenues in 2023, which is one of the highest indicators among Russian metal companies. With rolling mills of various widths, as well as some rolling mills unique in Russia, MMK boasts one of the widest product ranges of steel products in the country. The business profile assessment is constrained by the medium score for the Degree of Vertical Integration sub-factor. MMK’s mining assets cover its needs for iron ore by 17%, and for coking coal by 51%. According to the results of 2023, exports (including to the CIS countries) accounted for more than 20% of the Company’s revenue structure. Taking into account the significant share of products manufactured in Magnitogorsk, the Concentration on a Single Plant sub-factor received a medium score.

The high level of corporate governance reflects the consistency of the Company’s strategy to upgrade its production facilities, improve environmental friendliness in accordance with ESG principles, strengthen vertical integration in terms of iron ore supply, increase energy efficiency, and reduce costs. The Company has established a comprehensive risk management system. Strategic decisions are made by the board of directors; five out of ten directors are independent. The score for group structure takes into account its minor complexity, which is characteristic of vertically integrated holdings. The Group has a clear dividend policy aimed at maintaining an optimal balance between a moderate credit burden and the need to ensure a stable flow of dividends for shareholders. In terms of financial transparency, ACRA notes the high quality of the audited financial statements, the key aspects of which are disclosed in the notes.

Very high assessment of the financial risk profile. The scale of the Company’s business (FFO before net interest payments and taxes exceeds RUB 100 bln) is very large for the Russian corporate sector. Profitability is high: in 2023, the FFO before interest payments and taxes margin was 25%. ACRA estimates that in the forecast period from 2024 to 2026, the average profitability indicator will be around 22%. The Company’s leverage is assessed as very low. The ratio of total debt to FFO before net interest payments was 0.4x in 2023 (0.6x in 2022). The Agency expects the Company’s leverage to decline to 0.3x in 2024. Coverage (the ratio of FFO before net interest payments to interest payments) was 54.0x in 2023, and is expected to be 42.0x by the end of 2024. ACRA estimates that MMK’s liquidity is very high: the amount of cash held in bank accounts and undrawn credit lines is multiple times larger than the size of repayments expected in 2024–2026.

The Company’s free cash flow (FCF) after dividends was positive in 2021–2023, and, according to ACRA’s expectations, it will remain positive during the forecast period of 2024–2026.

key assumptions

  • Capital expenditures in line with the Company’s business plan;

  • Dividend payments in line with the dividend policy aimed at maintaining persistently low 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 FFO margin before interest and tax exceeding 25% and the FCF margin exceeding 10%.

A negative rating action may be prompted by:

  • The FFO margin before interest and tax declining below 15%;

  • The FCF margin declining below 2%.

RATING COMPONENTS

Standalone creditworthiness assessment (SCA): aa+.

Support: none.

issue ratings

No outstanding issues have been rated.

REGULATORY DISCLOSURE

The credit rating has been assigned to Public Joint Stock Company Magnitogorsk Iron & Steel Works under the national scale for the Russian Federation based on the Methodology for Assigning Credit Ratings 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 Public Joint Stock Company Magnitogorsk Iron & Steel Works was published by ACRA for the first time on November 10, 2022. 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 Public Joint Stock Company Magnitogorsk Iron & Steel Works, information from publicly available sources, and ACRA’s own databases. The credit rating was assigned based on the IFRS financial statements of Public Joint Stock Company Magnitogorsk Iron & Steel Works. The credit rating is solicited and Public Joint Stock Company Magnitogorsk Iron & Steel Works 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 Public Joint Stock Company Magnitogorsk Iron & Steel Works. No conflicts of interest were discovered in the course of credit rating assignment.

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