S&P rates Azovstal notes B-

Standard & Poor's said it assigned a B- long-term corporate credit rating to JSC Azovstal Iron and Steel Works and a B- debt rating to the proposed loan participation notes to be issued by financial vehicle Azovstal Capital BV, which will be used to finance a loan from Moscow Narodny Bank Ltd. to Azovstal.

The outlook is positive.

The ratings reflect Azovstal's position as a commodity player in a cyclical industry based in Ukraine (foreign currency BB-/stable/B; local currency BB/stable/B). The company is in the middle of a three-year, $800 million capital expenditure program aimed at modernizing its aged asset base. Although strategically important for the company's long-term competitiveness, the program will limit free operating cash flow generation in coming years, the agency said.

Pressure on Azovstal's liquidity has, however, been mitigated by a $200 million payment received from the Ukrainian government in December following the sale of Ukrainian steelmaker Kryvorizhstal to Mittal Steel Co. NV (BBB+/negative watch), according to S&P.

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