Fitch Ratings has upgraded public joint stock company Alrosa’s Long-Term Issuer Default Rating (IDR) to BBB from BBB-. The outlook is stable.
Fitch noted the following key drivers behind the rating upgrade:
- Dividend policy: a flexible and transparent dividend policy allows Alrosa to maintain conservative leverage on a through-the-cycle basis.
- Available sources of liquidity: the minimum liquidity reserve comprising cash and cash equivalents ensures business resilience amid sales slumps; in March 2021, Alrosa increased its minimum liquidity headroom to RUB 50 billion.
- Strong access to capital markets: the company has a strong access to global debt capital markets – in June 2020, it placed a US$500 million 7-year Eurobond issue with a coupon of 3.1% p.a.
- Resilient financial profile: despite a drop in sales which translated into significantly weaker financials in Q2 2020 (net debt / EBITDA above 1.0x), the market recovery enabled the company to substantially increase its free cash flow and bring the leverage back to the target level as early as in H2 2020.
- Comfortable leverage levels: in the mid-term, Alrosa will have a comfortable leverage as required for BBB category issuers.
- Diamond demand outstripping supply: global diamonds production saw a structural decline, and supply will be constrained over the coming years at or below 130 million carats per year under Fitch’s projections. At the same time, retail demand for jewellery in key markets continues to grow due to an increase in disposable income and the expansion of the middle class.
- Strong support record: the government supported Alrosa in the crisis of 2008-2009 by purchasing diamonds for the Russian State Fund for Precious Metals and Stones (Gokhran). In 2020, the company considered the same option, but did not go ahead with it due to sales recovery.
- Lab-grown diamonds: there is a clear trend of this category evolving into a separate jewellery market segment, with the lab-grown diamond prices plunging over the past few years as a result of lower production costs.
“We are happy that our management team’s efforts to strengthen the resilience of the company and the entire industry have won the deserved attention of the rating agencies and investment community. We will most certainly continue our work to further improve business efficiency, mitigate risks, enhance the quality of corporate governance and maintain our global leadership in terms of both production volumes and margins,” said Alexey Philippovskiy, Deputy CEO of Alrosa. Today, Alrosa boasts investment-grade ratings from all the three leading international agencies, with the Expert RA rating on the national scale reaffirmed at the highest level of ruAAA (stable outlook) on 23rd April, 2021.