RAPAPORT... Fitch Ratings indicated that it could upgrade ALROSA if the mining giant's sale of non-core stakes in Geotransgaz and Urengoy Gas Company is completed successfully. Fitch assessed ALROSA's long-term issuer default rating as ''BB-'' and its senior unsecured rating on ''rating watch positive.'' Fitch reaffirmed a rating of ''B'' for ALROSA's short-term issuer default rating.
In July, Russia cleared Rosneft's TNK-BP unit to buy Geotranzgaz and Urengoy Gas Company from ALROSA. The sale price was not discussed, however, ALROSA's president, Fyodor Andreev, stated earlier this year that the two gas assets were valued at more than $1 billion.
In a note to clients, Fitch explained that ALROSA would direct proceeds to repay short-term borrowing, which would result in a decrease of funds from operations adjusted gross leverage to 2.1 times by the end of 2013 (compared with 2.4 times at the end of 2012) and would improve its liquidity position.
Fitch assesses ALROSA's controlling shareholder, the Russian Federation (rated at BBB/Stable), as medium, which provides a one-notch uplift to the company's standalone rating of ''B+,'' it said.
ALROSA's expected public offering of a 14 percent stake later in the year is likely to be ''neutral'' to Fitch's ratings, since Russia and the Republic of Sakha (Yakutia) will remain firmly and jointly in control of the mining company, according to the agency.
Rating constraints include ALROSA's lack of product diversification and its exposure to the price cycles of the diamond market, coupled with higher-than-average political, business and regulatory risks of operating in Russia, according to Fitch.
The ratings firm added that while the sale of Geotransgaz and Urengoy Gas Company and subsequent repayment of short-term borrowings could lift ALROSA, future developments that could lead to a negative development included the miner's inability to roll over maturing debt and attract new financing to meet obligations, reduced government support, an adjusted gross leverage of operating funds above 3.0-times on a sustained basis and an earnings before interest, taxes, depreciation, amortization and restructuring or rent costs (EBITDAR) margin below 20 percent.