The credit rating of SibSulfur Co., Ltd (hereinafter, SibSulfur, or the Company) is based on the Company’s weak market position and the low assessment of the industry risk profile (which reflects an excessive volatility of the wholesale industry the Company belongs to, in ACRA’s opinion) and the medium business profile assessment. The weak assessment of the financial risk profile is due to the Company’s moderately high profitability, increase leverage, low coverage, and small size of business.
SibSulfur is a trading company whose main activity is the sale of sulfur, inert materials and coal in Russia and abroad. The Company was founded in Krasnoyarsk in 2005, the geography of its operations includes countries in North Africa, Middle East, and South-East Asia; the Company has repeatedly demonstrated its resilience and ability to adapt to changing business conditions. SibSulfur is a member of the Charter of the Agro-Industrial Complex.
KEY ASSESSMENT FACTORS
Moderately low assessment of the operational risk profile. In ACRA’s opinion, SibSulfur remains a competitive player in a fragmented market. It has a strong expertise in arranging supplies to internal market and oversees. The Agency notes the high geographic diversification of the Company’s activities — in 2022 and 2024, a significant portion of SibSulfur’s revenues was generated by overseas operations (supplies of products to Egypt, Turkey, and China).
The cyclical nature of demand for the Company’s products is assessed as moderate due to the wide geography of business, as well as a relatively stable demand from agribusinesses.
In addition to the ability to provide convenient logistics, SibSulfur’s advantage is the provision of flexible payment terms, which, however, negatively affected the amount of accounts receivable in the analyzed reporting periods and caused a high need for working capital. The three main buyers can account for up to half of the revenue. The Company works with international traders whose transparency is insufficient, but whose payment discipline is generally good. The Agency takes into account the Company’s plans to optimize working capital, but draws attention to a sharp (more than five times a year) increase in stocks, up to RUB 1.6 bln as of December 31, 2024. This, in turn, affects the free cash flow (FCF).
The corporate governance assessment is limited by the low level of formalization of internal control and risk management procedures, as well as limited financial transparency (the Company discloses only its balance sheet and profit and loss statements under RAS). The Company does not have a board of directors; however, mechanisms are in place for making certain decisions collectively.
ACRA notes the variability of the corporate strategy, which in recent years has included a number of development areas, including road construction, as well as trade in other goods (crushed stone, coal, etc.) to a greater extent (relative to current levels). Currently, the Company mainly focuses on the supply of sulfur. Currency risk hedging instruments are not used.
Moderately high FFO margin and small size of business. Despite the significantly changed business conditions and the increasing complexity of global logistics in recent years, the Company manages to maintain a stable volume of revenues (RUB 2.6–2.9 bln in 2022–2024). The Agency assumes that the FFO before interest payments and taxes will remain within its historical values, and its annual average value in 2025–2027 is expected at RUB 241 mln vs. RUB 231 mln in the three preceding periods. Therefore, the weighted average FFO margin before interest payments and taxes for 2022–2027 is estimated by ACRA at 8.6%.
Increased leverage and low interest coverage. The Company’s loan portfolio is assessed as diversified and consists of bank funding, and loans from individuals and corporates, including financial and non-financial entities, and leasing. Last year, SibSulfur entered the public debt capital market, having placed bonds for a total of RUB 300 mln (about a quarter of the total debt as of December 31, 2024), which contributed to a partial improvement in the structure of liabilities in terms of maturity. At the same time, the total amount of debt increased to RUB 1.3 bln as of December 31, 2024 compared to RUB 0.8 bln as of December 31, 2023. According to the Agency’s estimates, the weighted average ratio of short-term debt to revenues for 2022 to 2027 will be 0.2x, while the weighted average ratio of long-term debt to FFO before fixed payments for the same period, taking into account issued guarantees (excluding leasing), will not exceed 2.4x.
Weighted average FFO before net interest payments to interest payments is expected to be not higher than 1.1x, and therefore the degree of interest coverage is assessed by the Agency as low.
Limited liquidity and cash flow. Historically high volume of accounts receivable, as well as increased level of goods for resale, put pressure of the Company’s FCF. The Agency assumes that the volatility of the indicator will remain within sensitive ranges for assessment and expects that the weighted average FCF margin will be -4.4% from 2022 to 2027.
The assessment of the Company’s liquidity is affected by a rather high volume of debt liabilities due in 2025–2026, lack of significant available credit limits from banks and internal sources. At the same time, SibSulfur is rather successful in working to extend its short-term loan agreements with individuals. The Agency estimates the weighted average current liquidity ratio for 2022–2027 to be 0.2x.
KEY ASSUMPTIONS
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No dividend payments or other non-operating costs in 2025–2027;
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Maintaining the current pricing policy and marginality.
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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FCF margin consistently above 2%;
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Ratio of FFO before net interest payments to interest payments consistently above 5.0x.
A negative rating action may be prompted by:
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Increasing in the ratio of short-term debt to revenues consistently exceeding 0.3x;
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Weighted average FFO margin before interest payments and taxes falling below 2%;
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Weighted average ratio of FFO before net interest payments to interest payments falling below 1.0x.
RATING COMPONENTS
Standalone creditworthiness assessment (SCA): b.
Support: none.
ISSUE RATINGS
No outstanding issues have been rated.
REGULATORY DISCLOSURE
The credit rating has been assigned to SibSulfur Co., Ltd 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 SibSulfur Co., Ltd was published by ACRA for the first time on May 2, 2024. 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 SibSulfur Co., Ltd, information from publicly available sources, and ACRA’s own databases. The credit rating is solicited and SibSulfur Co., Ltd 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 no additional services to SibSulfur Co., Ltd. No conflicts of interest were discovered in the course of credit rating assignment.