The leading global ratings agency Fitch Ratings has maintained on rating watch negative (RWN) the long-term issuer default rating (IDR) and senior unsecured ratings of the Russian steelmaker and iron ore producer Evraz Group (Evraz), which are both at ‘B+'. Meanwhile, its short-term IDR was affirmed at ‘B' and the recovery rating for the senior unsecured debt at ‘RR4'.
"The maintenance of the RWN reflects continuing uncertainty regarding the company's ability to secure the necessary funding to refinance debt maturing in 2010 and 2011," reads the agency's statement.
Accordingly, Evraz's debt maturities are estimated at $1.9 billion both in 2010 and 2011, compared with $746 million of cash and equivalents and $1.1 billion of undrawn committed revolving facilities from the end of FY 2009. Based on a conservative base case forecast, Fitch expects Evraz to report negative free cash flow (FCF) of $200-250 million for FY 2010. Assuming maintenance of a minimum operational cash balance of $150-200 million, Fitch estimates a potential funding gap of up $500 million in 2010 and a gap of up to $2 billion in 2011.
Evraz has provided Fitch with a refinancing timetable which includes a combination of domestic bank facilities, ruble and foreign bond issues. "Completion of this program, primarily targeted for issuance in H1 2010, would largely address the agency's concerns regarding Evraz's liquidity in 2010-2011," Fitch said.
Meanwhile, during 2009 Evraz has demonstrated good access to bank and debt capital markets, rising over $2.5 billion in new facilities and extending a further $1 billion of bank lines. However, "significant execution risks remain in respect of its 2010 program," Fitch stated.
Fitch's base case for 2010 incorporates a conservative six percent assumed growth in Evraz's revenues based on flat average steel product prices. Production at Evraz's CIS facilities is anticipated to decline slightly with weaker exports, due to a potentially stronger average ruble rate and growing competition, while its overseas production is expected to grow by around 10-11 percent in 2010, albeit from a low run-rate in 2009. Fitch estimates Evraz's 2010 revenues and EBITDAR at respectively $9.5-10.5 billion and $1.5-1.8 billion.