Moody's rates Azovstal notes B3

Moody's Investors Service said it assigned a provisional B2 corporate family rating to Ukraine-based PJSC Azovstal Iron & Steel Works. Moody's also assigned a provisional B3 rating to the proposed offering of $200 million senior unsecured loan participation notes to be issued by special purpose vehicle Azovstal Capital BV for the sole purpose of financing Azovstal Capital BV's 100% sub-participation in a loan extended by Moscow Narodny Bank Ltd. to Azovstal.

The outlook is stable.

Moody's said the ratings are supported by Azovstal's strengthened financial levels following solid steel demand and a strong global pricing environment, the company's low cost structure, Azovstal's strong market position as a major supplier of slabs to Italy and other Western countries, Azovstal's role as the third largest steel producer in Ukraine and relatively strong historical financial metrics and low leverage.

The ratings are constrained, however, by Azovstal's limited transparency, the vulnerability of a sizeable share of revenues derived from the export market, the potential for highly volatile earnings given dependence on semi-finished products and slab, ongoing uncertainty with respect to availability of natural gas, Azovstal's historical low profitability and significant country, fiscal and regulatory risks associated with Ukrainian operating environment, the agency said.

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