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S&P: Russian Cosmetics Producer Concern Kalina National Scale Rating Raised To 'ruA-' From 'ruBBB+'

April 23, 2010 Standard & Poor's
MOSCOW (Standard & Poor's) April 22, 2010-- Standard & Poor's Ratings Services said today that it raised its Russia national scale rating on cosmetics producer and distributor Concern Kalina (JSC) (Kalina) to 'ruA-' from 'ruBBB+'.

"The rating action reflects an improvement in Kalina's debt maturity structure, decreased leverage, and substantial free cash flow generation achieved in 2009," said Standard & Poor's credit analyst Anton Geyze. "In addition, operational performance was robust in 2009, with operating profits increasing by 20% year on year."

In the first quarter of 2010, Kalina obtained two medium-term credit lines from large foreign banks, enabling the company to improve its debt repayment schedule and reduce the proportion of short-term debt to 50% from more than 85% throughout 2009. Kalina enjoyed the support of its key relationship banks during the 2008-2009 economic downturn, which meant the company's short-term bilateral bank lines were rolled over. Kalina also managed to secure a $40 million, five-year credit line from the European Bank for Reconstruction and Development (AAA/Stable/A-1+). Our rating decision is based on our expectation that Kalina's short-term lines will be rolled over.

We view the company's growing capacity for cash generation as supportive of its credit protection metrics. In 2009, Kalina generated substantial positive free operating cash flow of Russian ruble (RUB) 744 million ($23 million), after the company radically reduced its capital expenditure. Kalina's discretionary cash flow also entered positive territory as a result of a reduced dividend payout. As of year-end 2009, Kalina's ratio of adjusted debt to EBITDA improved to 2.3x from 2.8x a year earlier. The ratio of funds from operations to debt also improved for the same period, increasing to 20% from 18% in 2008, but less than the 31% reported in 2007. The main reason that the improvements were only slight was rising interest costs, illustrated by a drop in adjusted EBITDA interest coverage to 2.6x in 2009 from 3.3x in 2008 and 5.7x in 2007. In 2010, we expect the company's cost of capital to decrease as a result of increasingly benign credit market conditions in Russia. In addition, we expect debt leverage to remain at levels close to that of year-end 2009.
Company — Kalina
  • Full name
    open joint stock company Kalina
  • Registration country
    Russia
  • Industry
    Chemical and petrochemical industry