The credit rating of Ferrum LLC (hereinafter, the Company) has been affirmed due to the Company maintaining its credit metrics within the ranges set for the rating level.
The Company’s credit rating is based on medium assessments of the business profile, geographic diversification of sales in the Russian Federation and the level of corporate governance, as well as low leverage and medium liquidity. The main factors constraining the rating are the Company’s small size and low debt coverage.
Ferrum is a small trading company by the standards of the Russian corporate sector, specializing in wholesale trade of rolled metal products for the needs of the shipbuilding and ship repair industries. The Company has a network of warehouse terminals with the ability to maintain a warehouse stock of rolled metal with a volume of over 10,000 tons. The Company also has its own facilities for additional processing of rolled metal products.
KEY ASSESSMENT FACTORS
The medium assessment of the operational risk profile reflects the moderate cyclicality of the Company’s main activity — wholesale trade in steel products for the shipbuilding and ship repair industries, as well as moderate barriers to entering the market. The Company works with suppliers and buyers who have a fairly high level of credit quality. Purchases are made on a prepaid basis, while sales may be delayed, which implies the need to raise significant working capital financing. The Company’s main market is the Russian Federation, and there are no export sales in the revenue structure.
The medium assessment of corporate governance is based, on the one hand, on the very high assessment of the Group Structure sub-factor (in view of the simplicity of the organizational structure), and on the other hand, on the low assessment of the sub-factor Management Structure, which takes into account the absence of key management bodies at the Company (board of directors and committees under it), as well as adopted policies and procedures. The key shareholder plays an active role in the Company’s activities, and thereby forms the Key Person risk. At the same time, the Agency takes into account the fact that at this stage of its development, the Company’s corporate governance is in line with its tasks and scope of business. The medium assessment of the Management Strategy sub-factor is due to the fact that the Company sets short- and medium-term goals, rather than longer-term strategic ones. Risk management is assessed by the Agency as above medium in view of the absence of a risk management unit or a corresponding committee. The Company has procedures for lowering financial and reputational risks in coordination with counterparties. The low assessment of financial transparency takes into account the lack of IFRS financial statements.
Medium profitability and small size of business. The FFO margin before net interest payments and taxes was 6.4% in 2024. ACRA assumes that over the forecast period from 2025 to 2027, this indicator will remain at around 7.0%. The absolute value of FFO before net interest payments and taxes is less than RUB 500 mln per year, which explains the very low estimate of the size of business.
Low leverage and low coverage. The Company’s total debt as of the end of 2024 was RUB 1.5 bln. Debt is entirely made up of short-term credit lines provided by one of Russia’s largest banks. The ratio of short-term debt to revenues was 0.19x in 2024 (0.25x a year earlier). The debt coverage score has been downgraded due to growing interest rates. The ratio of FFO before net interest payments to interest payments was 1.8x in 2024 vs. 2.0x in 2023. Any further decline in this indicator is considered by ACRA as unlikely; however, if such scenario materializes, the Company’s credit rating may be revised.
The medium liquidity assessment is driven by the Company only having external funding sources — bank credit lines for which there is an undrawn limit.
The FCF assessment has been upgraded to medium. In 2022 and 2024, the Company invested to some extent in fixed assets, but the bulk of investment was to increase working capital. In 2024, the situation improved significantly due to a decrease in working capital, which, regardless dividend payments, led to positive FCF. ACRA assumes that the FCF margin will largely depend on dividend payments in the forecast period from 2025 to 2027.
KEY ASSUMPTIONS
- The Company meeting its revenue targets in the forecast period from 2025 to 2027.
- Average FFO margin before interest and taxes at around 7% over the forecast period.
- Moderate dividend payments.
POTENTIAL OUTLOOK OR RATING CHANGE FACTORS
The Stable outlook assumes that the credit rating will highly likely remain unchanged within the 12 to 18-month horizon.
A positive rating action may be prompted by:
- Absolute value of FFO before net interest payments and taxes exceeding RUB 500 mln a year coupled with the ratio of FFO before net interest payments to interest payments exceeding 2.5x and a positive FCF margin.
A negative rating action may be prompted by:
- Weighted ratio of FFO before net interest payments to interest payments falling below 1.0x.
- Ratio of short-term debt to revenue exceeding 2.0x along with a negative FCF margin.
RATING COMPONENTS
Standalone creditworthiness assessment (SCA): bb-.
Support: none.
ISSUE RATINGS
No outstanding issues have been rated.
REGULATORY DISCLOSURE
The credit rating has been assigned to Ferrum LLC 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 Ferrum LLC was published by ACRA for the first time on July 12, 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 Ferrum LLC, information from publicly available sources, and ACRA’s own databases. The credit rating is solicited and Ferrum LLC 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 Ferrum LLC. No conflicts of interest were discovered in the course of credit rating assignment.
