Fitch affirms Kazanorgsintez

Fitch Ratings said it affirmed Russia-based OJSC Kazanorgsintez's B issuer default and short-term ratings. The outlook is stable.

The ratings reflect Kazanorgsintez's strong profitability and solid position in the Russian chemicals market, the agency said. They have factored in the company's ambitious capital expenditure program, with total investments of around $755 million in 2005-2008, of which $272 million is for 2006 alone. The program is due to be completed in 2008. These investment projects appear to be on track but still carry significant execution and integration risks, Fitch noted.

Despite solid results in 2005, the agency said results for the first half of 2006 prepared according to Russian accounting are somewhat weak. The group reported year-over-year sales growth of 8%, but a 40% drop in net profit to $21.3 million after production costs rose 24%. Fitch attributed the deterioration in profits to disruption of ethane supply from Kazanorgsintez's core supplier. Although supplies were fully restored at the end of April, the financial impact of the disruption will be reflected in the 2006 results and, in Fitch's view, might prevent Kazanorgsintez from achieving its forecasted 23.8% revenue growth and 36% increase in EBITDA.

Total debt to EBITDA was 1.8x at the end of 2005 and is estimated to exceed 3x in 2006, according to the agency.

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