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TEXT-Fitch: positive developments at Sodrugestvo, outlook unchanged
July 16, 2012 / 3:13 PM / 5 years ago

TEXT-Fitch: positive developments at Sodrugestvo, outlook unchanged

July 16 - Fitch Ratings says that the recently announced agreement between
Sodrugestvo Group S.A. (Sodru; 'B'/Negative) and Mitsui & Co. Ltd. (Mitsui) to
acquire a 10% stake in Sodru is a positive development. However this action, in
isolation, does not change Sodru's rating outlook.

Fitch expects that a large portion of the proceeds from this private placement 
will be used to finance Sodru's existing capex program and refinance a portion 
of bank debt, therefore leverage metrics are expected to be stronger than 
previously forecasted for FY13 (ending 30 June 2013). 

Fitch acknowledges the strategic alliance signed in conjunction with the 
minority equity investment. Collaboration in origination and distribution of 
soft commodities will be beneficial for Sodru's operational profile. However 
Fitch does not expect synergies from this alliance will affect operating margins
materially in FY13.

On 1 June 2012, Fitch assigned Sodru a foreign-currency Issuer Default  Rating 
of 'B' with a Negative Outlook, reflecting the group's weak financial profile 
and execution risk in the integration of new businesses into the existing group 
structure while achieving benefits from related synergies. This uncertainty 
followed a trend of increased volatility in profitability. Sodru's EBITDA margin
in FY11 was 6.3% (excluding USD20.9m gain on business disposals) (FY10: 8.5%). 
Although FY12 results are expected to show stronger profitability the agency 
remains concerned about the consistency of the group's operating margins in 
conjunction with the business' rapid pace of expansion.

Fitch reiterates that the use of equity financing to partly fund growth and the 
associated synergies derived from the alliance with Mitsui in various business 
areas are positive steps towards stabilising the rating Outlook. However, Fitch 
will assess any revisions to the company's business plan as a result of the 
announced strategic alliance, together with the visibility from Sodru's new 
crushing plant and port terminal commissioning and their contribution towards 
the group's sustainable profits.

A more conservative financial policy that retains earnings leading to 
lease-adjusted net leverage of no more than 4x, or 3x adjusted for readily 
marketable inventories (RMI), and better financial flexibility driven by 
improvements in its debt maturity profile and liquidity are also key factors 
that could support a rating Outlook stabilisation within the next 12 months.Additional information is available on www.fitchratings.com.

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