The credit rating of JSC “HC “METALLOINVEST” (hereinafter, Metalloinvest, or the Company) has been downgraded due to growing debt service costs caused by the level of the Bank of Russia’s key rate on the background of stagnating industries that are main consumers of the Company’s products.
Metalloinvest is currently carrying out a large-scale optimization of its business model, pushing down prime costs and updating capex program, which, in the Company’s opinion, should improve its financial metrics.
It is worth noting that the Company’s credit rating may be revised in case the weighted leverage exceeds 2.0x and the weighted debt coverage remains below 10.0x.
The Company still holds the strong market position and maintains the very strong business profile determined by the high-quality resource base, thanks to which the Company’s production cost is one of the lowest in the mining segment not only in Russia, but in the world as well. The strong assessment of geographic sales diversification, strong corporate governance, and the strong financial profile support the Company’s rating.
Metalloinvest is a world-leading producer of hot-briquetted iron (HBI), a leading producer and supplier of iron ore and metal products, and a regional manufacturer of high-quality steel. The Company holds the world’s largest proven iron ore reserves. The Company’s production assets are Lebedinsky GOK, Andrey Mikhailovsky GOK, and Alexey Ugarov OEMK.
key assessment factors
The very strong business profile reflects the presence of a first-class resource base for iron ore production, advanced technologies for enrichment and processing of ore into various products with high added value, as well as the geographic proximity of main production assets to key sales markets that ensures the diversification and continuity of production processes. The medium assessment of product diversification reflects the Company’s focus on iron ore production, as well as high iron ore processing (iron ore pellets, HBI). The steel segment is an additional step in ensuring the diversification and expansion of the Company’s product portfolio.
Metalloinvest delivers its final products (both ore and steel) to a wide geographic area.
The strong corporate governance assessment is based on the Company’s clear strategic goals, comprehensive risk management system, a board of directors that defines strategic goals and objectives and forms key committees for risk management, dividend policy, remuneration and motivation, etc. The assessment of the group’s structure takes into account its minor complexity, which is typical for vertically integrated holding companies. In terms of financial transparency, ACRA notes the high quality of audited financial statements, important aspects of which are disclosed in notes.
The financial risk profile. The scale of the Company’s business is assessed as very large for the Russian corporate segment (FFO before net interest and taxes is over RUB 100 bln). Profitability is very high, with the FFO before interest and taxes margin remaining at 36% in 2024 and, according to ACRA’s estimates, expected at 35% in 2025, which is due to a high-quality resource base and low production costs. The Company’s leverage is assessed as low. The ratio of total debt adjusted for sureties to FFO before net interest grew to 2.6x in 2024 due to the growth of the Company’s total debt. The coverage ratio (FFO before net interest to interest) also deteriorated in 2024 and amounted to 4.8x. It is worth noting that the Company’s credit rating may be revised in case the weighted leverage exceeds 2.0x and the weighted debt coverage remains below 10.0x.
The liquidity assessment is very high, taking into account funds held in accounts and undrawn limits under credit lines provided by banks.
The high assessment of the Cash Flow sub-factor is the result of a combination of the negative FCF margin associated with, among other things, dividend payments and capital expenses, and the very high assessment of the ratio of capex to revenue (less than 10% of revenues).
key assumptions
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Production volume and sales in line with the Company’s business plan.
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Capital investment program in 2025–2027 as planned.
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Dividend payments in 2025–2027 as planned.
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Maintaining the current liquidity position.
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:
- Weighted leverage (total debt to FFO before net interest) remaining below 2.0x along with the weighted debt coverage (FFO before net interest to interest) exceeding 10.0x and the weighted FCF margin exceeding 2%.
A negative rating action may be prompted by:
- Weighted leverage exceeding 2.0x and the weighted debt coverage falling below 10.0x.
RATING COMPONENTS
Standalone creditworthiness assessment (SCA): aa+.
Support: none.
issue ratings
Exchange-traded interest-bearing non-convertible uncertificated bond subject to centralized title registration issued by JSC “HC “METALLOINVEST,” series 001Р-02 (RU000A1057D4), maturity date: September 10, 2027, issue volume: CNY 1 bln — AA+(RU).
Exchange-traded interest-bearing non-convertible uncertificated bond subject to centralized title registration issued by JSC “HC “METALLOINVEST,” series 001Р-03 (RU000A105M75), maturity date: December 11, 2025, issue volume: CNY 1 bln — AA+(RU).
Exchange-traded interest-bearing non-convertible uncertificated bond subject to centralized title registration issued by JSC “HC “METALLOINVEST,” series 001Р-04 (RU000A105W08), maturity date: February 17, 2027, issue volume: RUB 7 bln — AA+(RU).
Exchange-traded interest-bearing non-convertible uncertificated bond subject to centralized title registration issued by JSC “HC “METALLOINVEST,” series 001Р-05 (RU000A1071S3), maturity date: April 14, 2026, issue volume: CNY 1 bln — AA+(RU).
Exchange-traded interest-bearing non-convertible uncertificated bond subject to centralized title registration issued by JSC “HC “METALLOINVEST,” series 001Р-06 (RU000A1079S6), maturity date: November 23, 2027, issue volume: RUB 15 bln — AA+(RU).
Exchange-traded interest-bearing non-convertible uncertificated bond subject to centralized title registration issued by JSC “HC “METALLOINVEST,” series 001Р-07 (RU000A107K18), maturity date: December 25, 2025, issue volume: CNY 400 mln — AA+(RU).
Exchange-traded interest-bearing non-convertible uncertificated bond subject to centralized title registration issued by JSC “HC “METALLOINVEST,” series 001Р-08 (RU000A108WY1), maturity date: January 1, 2027, issue volume: RUB 10 bln — AA+(RU).
Exchange-traded interest-bearing uncertificated bond issued by JSC “HC “METALLOINVEST,” series 001Р-09 (RU000A10AFX9), maturity date: June 17, 2026, issue volume: RUB 10 bln — AA+(RU).
Exchange-traded interest-bearing uncertificated bond issued by JSC “HC “METALLOINVEST,” series 001Р-10 (RU000A10AU99), maturity date: February 5, 2026, issue volume: RUB 10 bln — AA+(RU).
Exchange-traded interest-bearing uncertificated bond issued by JSC “HC “METALLOINVEST,” series 001Р-11 (RU000A10AYY8), maturity date: February 20, 2026, issue volume: CNY 600 mln — AA+(RU).
Exchange-traded interest-bearing uncertificated bond issued by JSC “HC “METALLOINVEST,” series 001Р-12 (RU000A10B0C8), maturity date: February 23, 2027, issue volume: CNY 1.5 bln — AA+(RU).
Exchange-traded interest-bearing uncertificated bond issued by JSC “HC “METALLOINVEST,” series 001Р-13 (RU000A10B4D8), maturity date: March 10, 2027, issue volume: RUB 30 bln — AA+(RU).
Interest-bearing non-convertible uncertificated bond subject to centralized title registration issued by JSC “HC “METALLOINVEST,” series 028 (RU000A105A04), maturity date: October 22, 2028, issue volume: USD 285,780,000 — AA+(RU).
Exchange-traded interest-bearing non-convertible certificated bearer bond subject to centralized title registration issued by JSC “HC “METALLOINVEST,” series BO-04 (RU000A101EF3), maturity date: January 30, 2030, issue volume: RUB 10 bln — AA+(RU).
Exchange-traded interest-bearing non-convertible certificated bearer bond subject to centralized title registration issued by JSC “HC “METALLOINVEST,” series BO-09 (RU000A100B73), maturity date: April 16, 2029, issue volume: RUB 5 bln — AA+(RU).
Exchange-traded interest-bearing non-convertible certificated bearer bond subject to centralized title registration issued by JSC “HC “METALLOINVEST,” series BO-10 (RU000A101R90), maturity date: May 23, 2030, issue volume: RUB 5 bln — AA+(RU).
Rationale. The bond issues listed above represent senior unsecured debt of the Company. Due to the absence of either structural or contractual subordination of the issues, ACRA regards them as equal to other existing and future unsecured and unsubordinated debt obligations of the Company. According to the methodology, the Agency applied the simplified approach, according to which the issue credit ratings are equal to the Company’s credit rating — AA+(RU).
REGULATORY DISCLOSURE
The credit ratings of JSC “HC “METALLOINVEST” and the bond issues of JSC “HC “METALLOINVEST” (RU000A1057D4, RU000A105M75, RU000A105W08, RU000A1071S3, RU000A1079S6, RU000A107K18, RU000A108WY1, RU000A10AFX9, RU000A10AU99, RU000A10AYY8, RU000A10B0C8, RU000A10B4D8, RU000A105A04, RU000A101EF3, RU000A100B73, RU000A101R90) have 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 and the Key Concepts Used by the Analytical Credit Rating Agency Within the Scope of Its Rating Activities. The Methodology for Assigning Credit Ratings to Financial Instruments under the National Scale for the Russian Federation was also applied to assign credit ratings to the abovementioned issues.
The credit rating of JSC “HC “METALLOINVEST” was published by ACRA for the first time on September 15, 2020. The credit ratings of the bond issues of JSC “HC “METALLOINVEST” were published by ACRA for the first time on September 16, 2022 (RU000A1057D4), December 15, 2022 (RU000A105M75), February 22, 2023 (RU000A105W08), October 17, 2023 (RU000A1071S3), November 28, 2023 (RU000A1079S6), January 11, 2024 (RU000A107K18), July 5, 2024 (RU000A108WY1), December 24, 2024 (RU000A10AFX9), February 10, 2025 (RU000A10AU99), February 25, 2025 (RU000A10AYY8), March 5, 2023 (RU000A10B0C8), March 20, 2025 (RU000A10B4D8), November 2, 2022 (RU000A105A04), September 16, 2020 (RU000A101EF3, RU000A100B73, RU000A101R90). The credit rating and its outlook and the credit ratings of the abovementioned bond issues of JSC “HC “METALLOINVEST” are expected to be revised within one year following the publication date of this press release.
The credit ratings were assigned based on data provided by JSC “HC “METALLOINVEST”, information from publicly available sources, and ACRA’s own databases. The credit ratings are solicited and JSC “HC “METALLOINVEST” participated in their assignment.
In assigning the credit ratings, ACRA used only information, the quality and reliability of which were, in ACRA’s opinion, appropriate and sufficient to apply the methodologies.
The decision to downgrade the credit rating of JSC “HC “METALLOINVEST” to AA+(RU), outlook Stable, was made at a repeated meeting of the rating committee following ACRA’s consideration of a reasoned appeal by the rated entity against the decision of the initial rating committee to downgrade the credit rating of JSC “HC “METALLOINVEST” to AA+(RU) and to change the outlook to Negative due to the improvement in the estimated financial metrics. JSC “HC “METALLOINVEST” provided new additional information on potential sources of liquidity and optimization of capital expenses. As a result, the repeated meeting of the rating committee decided to take into account the abovementioned new additional information when determining the credit rating outlook. The rating factors have not changed.
ACRA provided no additional services to JSC “HC “METALLOINVEST”. No conflicts of interest were discovered in the course of credit rating assignment.
