The credit rating of PJSC “ALROSA” (hereinafter, ALROSA, the Company, or the Group) is determined by its ‘aaa’ standalone creditworthiness assessment (SCA), the medium level of support to the Company from the state, and a low degree of dependence of the state and the Group on homogeneous risk factors. The Company’s SCA is driven by the very strong assessment of the operational risk profile, which reflects the Group’s leading positions in the world in terms of diamond production and available resources, as well as very large business size, very high profitability, very low leverage, very high coverage, very strong liquidity, and strong cash flow.
ALROSA is the largest diamond producer, the global leader in diamond production and reserves. The Company is focused on exploration, mining and sale of diamonds. The Group’s mining assets located in the Republic of Sakha (Yakutia) and the Arkhangelsk Region include ten kimberlite pipes and fourteen alluvial diamond deposits.
key assessment factors
The medium level of government support, as per ACRA’s methodology, is determined by the medium assessments of the sub-factors ‘Functional Exclusivity’ and ‘Role in the Economy and Reputational Risks’ and high assessments of the sub-factors ‘Social Role’ and ‘Ownership, Control and Regulation’. ALROSA is almost a monopoly in a relatively narrow segment of the economy. The Company is a major employer and the largest taxpayer in the Republic of Sakha (Yakutia). The government exercises strategic control over the Company. ALROSA’s supervisory board is largely composed of representatives of the Russian Federation and representatives of the Republic of Sakha (Yakutia).
Stable performance regardless the sanctions pressure.
The Company’s 2023 revenue was almost the same as in the pre-sanctions period. This is due to the steady global trend of growing demand for diamonds exceeding the industry production volumes, as well as the growing share of demand from emerging markets that exceeds the production volumes of ALROSA. Given the market structure and consumption dynamics, ACRA does not expect the Company’s financial performance to be significantly impacted by the ban on the imports of Russian polished diamonds made from Russian rough diamonds imposed by the EU, Switzerland, the UK, the US, Japan, and Canada. The Agency also notes that, if necessary, the Company can sell additional volumes to the Ministry of Finance of the Russian Federation under the agreement on the purchase of diamonds.
Very strong market position and strong business profile.
ALROSA is one of the two main diamond-mining companies in the world. The Group outpaces of its main competitor, De Beers, in terms of production volumes. In 2023, the Company produced 34.6 million carats of diamonds, which is equivalent to about 30% of global production. The Agency expects this share not to change much in the medium term. ACRA notes the Company’s strong positions in such sub-factors as ‘Costs’ and ‘Resource Base Sufficiency’: given the Company’s current production volumes, its proven resources will last for more than 30 years of operations. The sub-factor ‘Concentration on One Field’ is also assessed at a very high level as the Company’s largest deposit accounts for no more than 25% of the consolidated production volume.
The Agency highly assesses the Group’s corporate governance quality due to the strong management structure, effective risk management system, and high financial transparency.
The financial risk profile is very strong in view of the very large size of the Company’s business, very high FFO before interest and taxes margin (44% in 2023, and ACRA expects the margin to remain near this figure in 2024–2026), very low leverage in the forecast period (the ratio of total debt to FFO before net interest was 1.23x in 2023; this year, the ratio is expected to reach 0.56x, followed by a decrease to 0.32x by 2026), as well as very high coverage (the ratio of FFO before net interest to interest was 33.6x at the end of 2023 (the weighted average ratio for 2021–2026 is expected at 39.5x). The liquidity is very strong given the internal and external financing sources available to the Company and a comfortable debt repayment schedule. The strong cash flow assessment is associated with high FCF margin and the medium score for the capex to revenue ratio.
key assumptions
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Production and sales volumes in line with the Company’s business plan for the forecast period.
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Capital expenses in line with the business plan.
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Absence of significant additional volumes of financing.
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 negative rating action may be prompted by:
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Significant decline of production and/or sales volumes;
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Capex to revenues ratio exceeding 30%;
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FCF margin declining below zero.
RATING COMPONENTS
SCA: aaa.
Support: on par with the Russian Federation.
issue ratings
No outstanding issues have been rated.
REGULATORY DISCLOSURE
The credit rating has 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, the Methodology for Analyzing Rated Entities Associated with a State or a Group, and the Key Concepts Used by the Analytical Credit Rating Agency Within the Scope of Its Rating Activities.
The credit rating has been assigned to PJSC “ALROSA” for the first time. 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 PJSC “ALROSA”, information from publicly available sources, and ACRA’s own databases. The credit rating is solicited, and PJSC “ALROSA” participated in its assignment.
In assigning the credit rating, ACRA used only information, the quality and reliability of which was, in ACRA’s opinion, appropriate and sufficient to apply the methodologies.
ACRA provided no additional services to PJSC “ALROSA”. No conflicts of interest were discovered in the course of credit rating assignment.
