The credit rating of PJSC “Koks” (hereinafter, the Group) has been downgraded in view of the deterioration in the leverage and coverage assessments at the end of 2022 and 2023. The Negative outlook reflects the Agency’s expectations regarding the further deterioration of these indicators by the end of this year and their weak recovery in 2025 and 2026.
The credit rating is based on the strong business profile assessment driven by the high degree of vertical integration of metal production of the Group, high assessment of geographic diversification of sales markets, and strong market position in narrow product segments (coke and pig iron). The rating continues to be constrained by the medium size of business compared to the biggest Russian steel companies, and the low leverage and coverage.
The Group is one of Russia’s leading merchant pig iron producers and the country’s largest producer of merchant coke.
key assessment factors
The strong business profile reflects the high degree of vertical integration (100% supply coverage for coke and over 50% coverage for iron ore and coking coal). In 2022, the Group reoriented its supplies of pig iron from export markets to a related company that produces a wide range of steel products for construction purposes and is a key supplier of these products to the construction market of Russia’s Central Federal District. The reorientation of pig iron sales contributes to greater financial stability. At the same time, the fact that merchant pig iron is a product with low added value that is used as a feedstock for the steelmaking segment limits the business profile assessment.
The medium corporate governance assessment reflects the consistency of the strategy to build a vertically integrated holding company and expand the resource base for mining operations. The risk management system corresponds to the average level for the corporate sector. The assessment of the Group’s governance structure takes into account the low level of independence of the board of directors because of the key-person risk associated with the ultimate controlling shareholder. Also considered in the assessment of the Group’s structure were its complexity and transactions with related parties, which, however, are economically justified. ACRA notes the good quality of the audited financial reporting and prompt presentation of operating performance by the Company.
The medium assessment of the financial risk profile stems from the high assessment of business size (the absolute annual value of FFO before net interest payments and taxes is less than RUB 30 bln), high profitability (the FFO before interest and taxes margin was 15% in 2023 and is expected at 11% in 2024), as well as the low assessment of leverage (the ratio of total debt to FFO before net interest was 5.4x in 2023 and is forecast to be 6.2x in 2024). The rating may be revised if the leverage indicator remains above 3.5x in 2025–2026 as per expectations. The coverage indicator (the ratio of FFO before net interest to interest) was 1.4x as of the end of 2023, and is expected to decline to 1.0x in 2024, which corresponds to a low assessment. The expected maintenance of the debt coverage below 2.5x in 2025–2026 may also be the basis for a rating revision.
The Group’s liquidity is assessed as medium. It is supported by both undrawn credit lines and cash held in bank accounts. Taken together, these factors are sufficient to cover forthcoming repayments in 2025.
The cash flow assessment is medium, taking into account the medium score for FCF margin and the high score for the ratio of capex to revenue.
KEY ASSUMPTIONS
-
Production indicators in line with the Group’s business plan.
-
Capital expenses in line with the business plan.
-
No major dividend payouts by the Group or loans to related companies until 2026.
POTENTIAL OUTLOOK OR RATING CHANGE FACTORS
The Negative outlook assumes that the rating will highly likely be downgraded within the 12 to 18-month horizon.
A positive rating action may be prompted by:
- The ratio of FFO before net interest to interest exceeding 2.5x, the leverage (the ratio of total debt to FFO before net interest) declining below 3.5x, and a very high qualitative assessment of the Group’s leverage.
A negative rating action may be prompted by:
- Leverage (the ratio of total debt to FFO before net interest) remaining above 3.5x in 2025–2026.
rating components
Standalone creditworthiness assessment (SCA): a-.
Adjustments: none.
issue ratings
No outstanding issues have been rated.
regulatory disclosure
The credit rating has been assigned to PJSC “Koks” 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 PJSC “Koks” was published by ACRA for the first time on February 21, 2020. 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 “Koks”, information from publicly available sources, and ACRA’s own databases. The credit rating was assigned based on the consolidated IFRS financial statements of PJSC “Koks”. The credit rating is solicited and PJSC “Koks” 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 PJSC “Koks”. No conflicts of interest were discovered in the course of credit rating assignment.
