Fitch affirms MMK BB+ rating

Press Release

May 15, 2014

Fitch affirms MMK BB+ rating

Rating agency Fitch Ratings affirmed OJSC Magnitogorsk Iron & Steel Works' (MMK) Long-term Issuer Default Rating (IDR) at 'BB+'; Outlook Negative.

The ratings reflect MMK's position as a leading supplier of steel to the Russian market and as a producer of high value-added steel products.

In its press release Fitch notes decreasing leverage as the main rating driver. MMK repaid USD535m in 2012 and USD700m in 2013 to keep its elevated leverage under control.

Following heavy investments over the past six years, the company's capital expenditure declined to USD681m in 2012 and to USD 630m in 2013 (from an average of USD1.7bn per year in 2007-2011). This resulted in positive free cash flow (FCF) generation. Positive FCF also contributed to a decline in funds from operations (FFO) adjusted gross leverage to 3.2x at end-2013 from 3.5x at end-2011. Fitch expects MMK to continue generating positive FCF in 2014-2016, due to a moderate capital spending programme. This will contribute to a further decrease of FFO adjusted gross leverage to 2.7x by end-2014 and to 2.1x by end-2015.

Fitch also notes that MMK's lower vertical integration versus its peers has benefited the company in the current weak market environment. Falling prices of major raw materials coking coal and iron ore mean raw materials from suppliers become cheaper than the operating costs of in-house suppliers (typically medium to high cash cost producers). MMK's slab cash costs have been declining over the last two years, to USD356/tonne in 4Q13 from USD459/tonne in 4Q11.

The agency assessed the company's liquidity position as acceptable.

About MMK

MMK is among the world's largest steel producers and is one of the leaders of Russia's steel industry. The company's operations in Russia include a large steel producing complex encompassing the entire production chain, from preparation of iron ore to downstream processing of rolled steel. MMK turns out a broad range of steel products with a predominant share of higher value added products. In 2013 MMK Group produced 11.9 mln tons of crude steel and 11 mln tons of commercial steel products. The MMK Group's revenue in 2013 totalled USD 8.190 bln, with EBITDA at USD 1.223 bln.

Investor Relations Department:

Andrey Serov, Head of IR

tel.: +7 (3519) 24-52-97

E-mail: [email protected] 

MMK Communications Department

Dmitry Kuchumov Sergei Vykhukholev Alexander Proskurov

Tel: +7 (499) 238-26-13 Tel: +7 (499) 238-26-13 Tel: +7 (3519) 246 303

E-mail: [email protected] E-mail: [email protected]  E-mail: [email protected]