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Oct 25, 2007 13:54 EEST
October 25 (SeeNews) - Global rating agency Moody's has changed to negative the outlook on its Caa1 corporate family rating of Bulgarian steel mill Kremikovtzi and Caa1 rating on the plant's 325 million euro bond on lower that originally expected profitability in 2007, Moody's said on Thursday.
Moody's had previously assigned a Caa1 rating with stable outlook to Kremikotzi’s bond.
Kremikovtzi’s earnings before interest, tax, depreciation and amortisation (EBITDA) for 2007 are expected to remain behind the initial expectation for the year that exceeds $130 million (91 million euro), Moody's said in a statement.
The company cut its first-half net loss to 21.47 million levs ($15.7 million/11 million euro) from 153.14 million a year earlier. EBITDA is seen poorer due to a lower than projected revenue per tonne and weaker margins achieved by Kremikovtzi in the first half of the year, reflecting strong energy and raw material prices and inflation impact on labour and overheads costs, while the company continues to invest to secure future profitability and growth in volumes, Moody’s said.
Kremikovtzi has pledged to invest $160 million in environment protection in 2007 alone. Bulgaria's annual inflation accelerated to 13.1% in September from 12% in August mainly due to rising food prices, as drought and floods damaged crops earlier in the year.
The company is currently trying to obtain a permit from the country’s Environment Ministry which it needs in order to continue operating.
Moody's noted that a delay with the implementation of the investments in environmental protection may lead to penalties.
Kremikovtzi’s majority shareholder, Indian steel maker Ispat Industries, remains committed to the project and continues to inject capital into the venture, including a $15 million subordinated loan in October, Moody’s said.
At this stage of the restructuring, Kremikovtzi's liquidity position and debt service obligations are largely supported by the additional capital contributions. The company also relies on working capital facilities and credits, and may consider a sale of legacy inventory to fund capacity expansion.
To stabilise the outlook on the ratings, Moody's said it will look for a resolute strengthening in profitability in line with the initial projections, as well as an improvement in cash flow generation and in the liquidity position of the company.
Kremikovtzi, set up in the 1960s, generates around 3.0% of the Bulgarian gross domestic product (GDP) and 10% of the country's exports to the European Union, according to estimates of the steel mill. Its shares are quoted on the Bulgarian Stock Exchange.
($ = 0.7002 euro)
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