Fitch downgrades Uralkali to 'junk'

By bne IntelliNews July 7, 2015

bne IntelliNews -

 

Fitch Ratings has downgraded Russian potash fertiliser producer Uralkali’s Long-term Issuer Default Ratings (IDR) to BB+ from BBB-, with a negative outlook, the agency said on July 7. The foreign currency senior unsecured rating on Uralkali Finance Limited's notes was also downgraded to BB+ from BBB-.

The downgrade reflects Uralkali's weakened financial and operational profile "as well as corporate governance that can no longer be considered materially above average against Russian peers", Fitch noted, amid ongoing speculation that the company intends to delist in London and Moscow and merge with its shareholder, ammonia and nitrogen producer Uralchem. 

Fitch's move follows a $1.1bn share buyback and commencement of a discretionary dividend policy from 2015 at a time of low production following the Solikamsk mine accident, leading to accelerated capex spend, and continued weak potash pricing, according to the agency. 

As a result, Fitch forecasts funds from operations (FFO) adjusted net leverage will go over the negative rating sensitivity of 2.5x to 3.0x at FY15, and may stay above 2.5x after 2015 subject to the shareholder distributions made after the announced buyback. This is despite Uralkali's continued leading cost position in the potash market and strong cash generative capacity through the cycle.

The negative outlook "reflects uncertainty around the future pace of deleveraging stemming from uncertainty on future shareholder returns, following Uralkali's departure from its previously communicated deleveraging target", Fitch said.

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