Moody's confirmed the existing B1 rating of ISD and assigned a negative outlook

Moscow, January 30, 2009 -- Today Moody's confirmed the existing B1 rating of ISD and assigned a negative outlook. Moody's notes that the company has taken a number of corrective steps to address the immediate pressure on profitability and cash flow while benefiting somewhat from the competitive position of Ukrainian producers linked with the depreciation of the currency. Nonetheless given the lower than expected cash flow generation Moody's views current liquidity position of the company satisfactory but with a significant proportion of short-term debt as a constraining factor which put a negative pressure in the company's current rating if it is not addressed on a timely manner. The negative outlook reflects also the effects of the weaknesses in the industry, the low visibility for prospects of short term recovery and the current limitations for Ukrainian companies to receive long-term funding from their banks. Moody's will continue to follow closely the measures the company is taking to offset these negative market developments, by reducing planned capex projects and by re-financing maturing debt. On the positive side Moody's notes that ISD has already scaled back significant capex projects to conserve cash generated, and that also steel production at two plants Huta and Dunaferr have been reduced by around 25% to reduce the current supply/demand imbalance on the market for steel produced in Europe while both Ukrainian plants DMK and AMK operate at full capacities. Although ISD does not control raw material supply including coal and iron ore, the company already largely re-negotiated raw material supply contracts which now reflect the lower prices which partly released negative pressure on the profitability going forward The last rating action was on November 5, 2008 when Moody's placed the company under review for possible downgrade. This rating action concludes the review which was prompted by a significant weakening in the demand for steel products in the Ukraine and the strong reduction of steel prices. The review was focused on: (i) monitoring of the operating performance for any indication of stabilization in the production level and prices; (ii) assessing the profitability level and cash flow generation capability under the negative market developments; and (iii) assessing the availability of liquidity to cover operating needs including changes in working capital, debt repayments and mandatory capex investments. The principal methodology used in rating ISD was Global Steel Industry, October 2005 (94683), which can be found at www.moodys.com in the Credit Policy & Methodologies directory, in the Ratings methodologies subdirectory. Other methodologies and factors that may have been considered in the process of rating ISD can also be found in the Credit Policy & Methodologies directory. Industrial Union of Donbass ("ISD") is one of the leading steel producers in Eastern Europe and is one the largest in Ukraine with an annual production of 10.1 million tones of liquid steel in 2007. The company's production assets are located in four sites, with two mills in the Ukraine and one each in Hungary and Poland. Through its JV with Duferco, the company also has equity interests in Danish Steel in Denmark, MakStil in Macedonia and supplies slabs to Farrell in the US. ISD is primarily exporting its products (85% of 2007 revenues) with the main export markets being Europe (45% of total sales) following by sales to South-East Asia (20% of the sales). The company is ultimately owned and controlled by several Ukrainian individuals and their families. In 2007 the company reported revenue of USD 6.15 billion and USD 1.3 billion of EBITDA based on audited consolidated financial statements.

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