Industrial Union of Donbas Preparing to Attract Debt Financing

The Industrial Union of Donbas, which controls Alchevsk Coke, Alchevsk Iron & Steel and DMK Dzerzhinskogo Steel, received a B1 credit rating from Moody’s for foreign and national currency. Fitch assigned the IUD a long-term issuer default B+ rating and a short-term issuer default B rating, with a stable outlook. Eugene Cherviachenko: The assignment of the rating is likely evidence that the group is close to materializing its plans to attract debt for its extensive, nearly USD 2 bln CapEx program. On February 27, 2007 the group announced plans to attract USD 300-500 mln in debt in 3Q07. Importantly, success of the borrowing might question the necessity of the additional share issue at the Alchevsk Iron & Steel, the key asset of the group. The latter recently suspended the first stage of subscription for its USD 300 mln additional share issue, which should triple its charter fund – the company (somewhat suspiciously) failed to publish an announcement as required by law, which is usually just a technicality. We assume the group might have found a way to receive funds without increasing equity at Alchevsk Iron & Steel (see our note of June 27).