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Moody’s Raises ALROSA’s Ratings Outlook

Jul 27, 2012 3:43 AM   By Dilipp S Nag
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RAPAPORT... Moody’s Investors Service changed its outlook on ALROSA’s ratings to ''positive'' from ''stable'' as it expects the mining giant  to partially dispose of assets related to its Timir iron ore project by the end of the year, coupled with a strong pricing environment for rough diamonds, despite implicit market volatility. The positive outlook is further supported by the company’s substantial global market share and low cost reserve base, Moody's  noted.

The ratings agency maintained the company's Ba3 corporate family rating but raised ALROSA's baseline credit assessment (BCA) to b2 from b3 following improvements in sales and profitability on the back of rising diamond prices. Moody’s affirmed the Ba3 ratings on the senior unsecured guaranteed notes of ALROSA Finance S.A.

The BCA upgrade was driven by improvements in the diamond market in 2011 and the first quarter of 2012, Moody’s said. It added that the average price of diamonds sold by ALROSA rose to $130 per carat in 2011 from $84 in 2010 on broadly flat volume.  The continued positive pricing environment in the first quarter of 2012 sets up expectations for a sustained, robust performance in the diamond market over the coming months.

Moody's said that it expects the current relatively favorable diamond market environment will persist throughout 2012 due to strong jewelry sector demand, driven by demand from the U.S. and Southeast Asia and underpin strong cash flow generation in 2012.

Uncertainty over the company's disposal and development of non-core assets has abated to some extent and ALROSA is in the final stages of negotiation regarding its disposal of a 51 percent stake in the Timir iron ore project to EVRAZ, Moody's stated. The process is likely to be concluded and closed by the end of 2012 and should generate about $170 million in revenue. The estimated capital expenditure for the Timir project is $30 million in 2012 and $2 billion in total to be spread over the next dozen years.

Moody's said that negotiations over the disposal of part of ALROSA's 100 percent interest in ZAO Geotransgas and Urengoyskaya Gas Company also continue and uncertainty over the terms and timing of this transaction will continue to exercise pressure on the company's liquidity and debt levels. In the near term, Moody's expects that the company will maintain its current debt level. ALROSA had about $547 million of cash and about $4.328 billion of debt as at March 31, 2012.
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Tags: Alrosa, diamond, Dilipp S Nag, Moody’s, Rapaport
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