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Fitch downgrades Stirol to ‘B-’; Remains on Rating Watch Negative

August 18, 2006
Fitch Ratings has today downgraded Ukraine-based OJSC Stirol’s Issuer Default rating (“IDR”) to ‘B-’ (B minus) from ‘B’. The USD125 million limited recourse notes issued by UkrChem Capital B.V. have also been downgraded to senior unsecured ‘B-’ (B minus) from ‘B’. The IDR and senior unsecured rating, together with the Short-term ‘B’ rating, remain on Rating Watch Negative (“RWN”), initially assigned on 5 July 2006.

The downgrade reflects Fitch’s concern that Stirol’s profitability could be further reduced as a result of natural gas price increase and the overall uncertainty over the direction of natural gas prices in 2007. Stirol’s interim H106 results prepared under Ukrainian accounting standards show significant deterioration of profitability due to a hike in the gas prices. It reported sales of UAH1.2 billion (USD245 million) and operating profits of UAH178.4m (USD35.7m), up 4% and down 45%, respectively on H105.

The downgrade also reflects the poor quality and lack of timeliness of Stirol’s financial disclosure. Stirol published its FY05 audited IFRS accounts on
7 August. This timing represents a slightly longer-than-one month delay to the original 180 days from the year-end, stipulated in the bond documentation, but within the cure period that was set to expire on 8 August. The accounts disclosed breaches of a number of non-financial covenants on Stirol’s loan agreements, which could result in lenders as well as note investors demanding immediate repayments on both its USD10m bank loan and USD125m notes issued by UkrChemCapital BV for the sole purpose of financing a loan from Moscow Narodny Bank Limited (MNB rated ‘BBB‘/Stable/‘F3’) to Stirol.

All ratings remain on RWN to reflect Stirol’s failure to obtain covenant waivers to date. As a consequence, in the FY05 accounts auditors classified the abovementioned debt instruments as short-term. Currently the risk of accelerated repayment initiated by lenders is mitigated by the company’s adequate liquidity position. Stirol has advised Fitch that it has sufficient funds to meet its repayment obligations.

Fitch expects the RWN to be resolved upon provision by Stirol of evidence that covenant waivers have been obtained.
Company — Stirol
  • Full name
    SC "Concern "Stirol"
  • Industry
    Chemical and petrochemical industry