S&P downgrades Ferrexpo rating to sovereign one

Standard & Poor’s Ratings Services lowered on Dec. 14 the rating of Ferrexpo Eurobonds (FXPOLN) to “B” from “B+” with a negative outlook, following a corresponding rating action in respect to Ukraine’s sovereign Eurobonds a week before. In addition to the sovereign downgrade, S&P highlighted delays in Ferrexpo’s VAT receivables refund, which grew 1.6x YTD as of end-September to USD  281 mln, thus constraining the company’s operating liquidity.

Roman Topolyuk: S&P’s move was broadly expected (refer to our news on Dec. 10) and thus is unlikely to have any impact on Ferrexpo’s stock or bond price. We think that the negative impact of building up VAT receivables is largely priced-in. We see Ferrexpo’s financial position and solvency is more exposed to global iron ore market risks than to Ukraine’s sovereign risks. International markets are relatively stable and do not prompt a risk of Ferrexpo’s liquidity worsening. Chinese spot prices for iron ore pellets (CFR, Chinese port) have risen by 5% during the first two weeks of December to USD 149.5 per tonne, bringing the average spot price in 2H12 to USD 140 per tonne (-12% hoh), which is  1% higher than our expectations.