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S&P: Russian OMZ Ratings Reinstated On Release Of Audited Statements; Rated At 'B-/ruBBB'; Outlook Stable

July 21, 2009 "Standard & Poor's"
-- Russian heavy-engineering holding company OMZ has published its audited financial statements for 2007 and 2008.
-- We are reinstating and raising our long-term corporate credit and Russia national scale ratings on OMZ to 'B-/ruBBB', from 'CCC+/ruBB' before they were suspended.
-- The stable outlook reflects our view that, with the likely cooperation of its majority shareholder, Gazprombank, OMZ will be able to refinance or roll over its short-term debt maturities.

FRANKFURT (Standard & Poor's) July 21, 2009, Standard & Poor's Ratings Services reinstated its ratings on Russia-based heavy-engineering holding company OMZ. At the same time, the long-term corporate credit and Russia national scale ratings on OMZ were raised to 'B-' and 'ruBBB', from 'CCC+' and 'ruBB', where we rated the company before we suspended the ratings on Dec. 23, 2008. For further details, see the article titled "OAO OMZ Ratings Suspended On Continued Delay In Releasing Fiscal 2007 Audit," published Dec. 23, 2008, on RatingsDirect. The outlook is stable.

The reinstatement follows OMZ's publication of its audited financial statements for fiscal 2007 and 2008.

"The rating action reflects OMZ's favorable profitability and cash flow performance over the last year and the resulting improvement in credit measures," said Standard & Poor's credit analyst Varvara Nikanorava. "We also view the likely cooperation of its majority shareholder, Gazprombank, in helping it manage its liquidity situation very positively."

Our ratings on OMZ reflect what we consider to be its "weak" business risk profile and "highly leveraged" financial risk profile, according to our criteria. The ratings also reflect our view of OMZ's liquidity position, which we classify as "very weak. The company has a highly leveraged financial structure resulting from a string of primarily debt-financed acquisitions over past years. These frequent acquisitions and disposals have resulted in a complex organizational structure. The company's exposure to the cyclical oil and gas and mining and equipment end-markets, as well as the high capital intensity of its business and Russia country risks, represent further rating constraints.

These negative factors are tempered to some extent by the apparent willingness of Gazprombank (BB+/Watch Neg/B; Russia national scale ruAA+/Watch Neg), to provide funding support, and OMZ's leading position in nuclear power equipment and large and extra-large semifinished metallurgical products in Russia and the Commonwealth of Independent States. OMZ enjoys a meaningful market share domestically, where it generates the majority of its earnings. On Dec. 31, 2008, the company reported total debt of $510.2 million.

The outlook is stable because we believe that OMZ will be able to refinance or roll over its short-term debt maturities as they come due, despite the current credit market difficulties. Furthermore, we believe that in these difficulties, the company will carefully manage its future strategic investments and adjust financial policies to prevent sharp increases in the group's consolidated financial leverage. We also assume that OMZ will manage to protect its market positions and prevent its operating margins from declining sharply.

We might lower the ratings if OMZ fails to arrange funding to fulfill its obligations on bond put options in September and December 2009 or if OMZ fails to refinance or roll over its short-term maturities as they become due. Further possible triggers for a negative rating action include significant deterioration of its operating cash flows, or diminished willingness by Gazprombank to provide timely support. Adverse developments in Russia's transitional regulatory and administrative environment could also pressure the ratings.

"Ratings upside is unlikely in the near term," said Ms. Nikanorava.
Company — UHM
  • Full name
    UHM (United Heavy Machinery) (Uralmash-Izhora Group) PJSC
  • Registration country
    Russia
  • Industry
    Engineering industry