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Moody's changes outlook on Stirol's B3 ratings to stable from negative

May 23, 2008
London, 23 May 2008 -- Moody's Investors Service has today changed the
outlook on the B3 corporate family and bond ratings of OJSC Concern Stirol
("Stirol") to stable from negative.

The change of the outlook on Stirol's ratings reflects a substantial removal
of liquidity and default concerns that arose from cash flow uncertainties
and a breach of covenants in 2006-2007 (that subsequently have been waived
by the lenders).

Large increases in natural gas prices in 2006 and 2007 had a substantial
negative effect on the cost position of Stirol, and are reflected in Moody's
less favourable assessment of the business position of the company. The
changing market conditions, however, are largely addressed by the company
through (i) a prompt adjustment of the product mix; (ii) a greater focus on
energy efficiency through building into own power generation capacity, (iii)
investments into production technology to minimise gas consumption (12%
reduction in gas-use per tonne of ammonia has been achieved in 2007), as
well as (iv) its renewed focus on increasing the share of higher value-added
and non-fertiliser products in the output mix in order to limit the effects
of the feedstock price volatility and improve its profitability over a
longer period of time.

Moody's notes that global ammonia and fertiliser markets continue to enjoy a
long-term cyclical upturn, while the present revival of the Ukrainian
agricultural market is expected to reinforce the demand for nitrogen
fertilisers and support further growth in Stirol's domestic sales.

Looking ahead, Moody's will focus on Stirol's ability to sustain margins in
view of the expected increases in natural gas prices in 2008 and will also
closely monitor the execution of the substantial investment programme
planned by the company. The ratings do not incorporate any debt-financed
acquisitions.

Stirol's liquidity position is underpinned by approximately US$153 million
-- denominated in US dollars and Ukrainian hryvnas -- in cash balance and on
term deposits with local banks as at 22 May 2008. The stable outlook on the
ratings reflects Moody's understanding that Stirol is committed to
maintaining the deposits to fund, in particular, the forthcoming repayment
of its US$125 million Notes on 19 August 2008.
Stirol is expected to generate a negative FCF in the next few years and will
rely on availability of funding for a timely execution of its CAPEX
programme.

Domiciled in Gorlovka, Ukraine, OJSC Concern Stirol is a leading
manufacturer of ammonia and its derivatives, generating UAH2.98 billion
(US$591 million) and UAH283 million (US$56 million) in EBITDA as of 31
December 2007 (as per unaudited financial statements).
Company — Stirol
  • Full name
    SC "Concern "Stirol"
  • Industry
    Chemical and petrochemical industry