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Fitch Upgrades JSC Stirol to 'B-'; Outlook Stable

November 24, 2008 "Fitch Ratings"
Fitch Ratings-Frankfurt/London 21 November 2008: Fitch Ratings has today upgraded Ukrainian chemical company JSC Stirol's Long-term foreign currency Issuer Default Rating ("IDR") to 'B-' (B minus) from 'CCC'. The Outlook on the IDR is Stable. The Short-term rating is affirmed at 'B'.

The upgrade reflects the strengthened financial profile of Stirol, which has benefited from favourable conditions on the international fertiliser markets more than compensating for increases in natural gas prices. The strongly increased cash from operations was partly used to repay all of Stirol’s long-term debt during 2008. Furthermore, the agency notes that Stirol has now resolved outstanding issues regarding compliance with its financial documentation in the light of previous covenant breaches.

Stirol’s ratings reflect its leading market position in the Ukraine fertiliser markets, and its favourable location close to the Togliatti-Gorlovka-Odessa pipeline and the Odessa sea port resulting in reduced transport costs. Stirol plans to further strengthen its competitive position with a USD230m investment programme from 2008-2010, focussing on improving cost and operational efficiency, the quality and volume of production output, as well as reducing green house gas emissions.
Stirol’s ratings remain constrained by the lack of operational diversity in its product mix and asset location. The company is fully dependent on the cyclical nature of the international nitrogen fertiliser markets and, at the same time, has limited bargaining power with the supplier of its main feedstock. While Fitch views positively the medium term demand trend from the international fertiliser markets, it also expects competitive pressures will increase for Stirol over the same period, due to new capacity coming on stream in regions with access to cheaper feedstock supplies, such as the Middle East, SE Asia and China. The agency also notes continuing risks relating to Stirol’s corporate governance structure - the ownership of a majority stake in the company by a single individual, and the company’s operations being concentrated in the Ukraine (B+; Outlook Negative).

The Stable Outlook reflects Fitch’s view that Stirol will continue to deliver EBITDA margins in excess of 8% over the mid-term, while maintaining a comfortable liquidity profile.

Fitch expects that Stirol will generate strong cash from operations in FY08. At end-Q3FY08 the company had USD193.6m cash and equivalents on its balance sheet, of which USD40m were denominated in foreign currency. On 19 August 2008, Stirol repaid USD125m loan participation notes. A USD10m revolving credit facility with the local subsidiary of a major international bank which was due to mature on 10 December 2009 has now been extended for one year. Stirol has no further maturing credit lines or debt maturities until October 2009. The total capex programme for FY08 amounts to USD71m, of which USD35m is non-discretionary capex. At end-Q3FY08 Stirol had total financial debt of USD62m.
Company — Stirol
  • Full name
    SC "Concern "Stirol"
  • Industry
    Chemical and petrochemical industry