Fitch Revises MMK's Outlook to Stable

Press Release

May 7, 2015

Fitch Revises MMK's Outlook to Stable; Affirms at 'BB+'

OJSC Magnitogorsk Iron & Steel Works' (MMK) is pleased to announce that on May 6th, 2015 rating agency Fitch Ratings revised the Outlook on MMK's Long-term Issuer Default Rating (IDR) to Stable from Negative and affirmed the IDR at 'BB+'.

The ratings reflect MMK's strong position on the Russian market as a supplier of a wide range of high value-added steel products. The revision of the Outlook reflects the company's material deleveraging in 2014.

In its press release Fitch notes that MMK's total debt reduced by USD0.6bn in 2014. Since 2011 the company has reduced indebtedness by USD1.8bn and is still committed to deleverage using cash funds and cash flow from operations. The company has remained free cash flow (FCF) positive, and Fitch expects MMK to continue generating positive FCF in 2015-2018, due to the moderate capital spending programme.

Fitch also admits that MMK, which has lower vertical integration than its peers, is benefiting from current weak raw materials market environment. Falling prices of coking coal and iron ore mean raw materials from suppliers became cheaper than the operating costs of in-house suppliers (typically medium to high cash cost producers).

Fitch sees the company's capital spending as moderate in 2015 at USD440m (Fitch estimate) in contrast to MMK's previous aggressive spending (an average of USD1bn per year in 2010-2014). Fitch expects MMK to remain FCF positive through 2018 (2015 forecast being USD573m).

MMK's Turkish division continued to narrow its operating losses to USD37m in 2014, from USD86m in 2013, following suspended steel-making production in late 2012 and running only rolling mills. It reported EBITDA of USD28m in 2014 versus negative EBITDA of USD75m in 2012.

Fitch assessed MMK's liquidity position as acceptable with USD327m of cash in hand, USD222m of short-term investments and USD1.1bn unutilised bank loans at end-2014 compared with USD0.9bn of short-term borrowings.

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 2014 MMK Group produced 13 mln tons of crude steel and 12.2 mln tons of commercial steel products. The MMK Group's revenue in 2014 totalled USD 7.952 bln, with EBITDA at USD 1.607 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

Tel: +7 (499) 238-26-13 Tel: +7 (499) 238-26-13

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