Moody's Investors Service has upgraded Russian diamond mining company ALROSA PJSC's corporate family rating (CFR) to Ba1 from Ba2 and probability of default rating (PDR) to Ba1-PD from Ba2-PD. The outlook on these ratings is negative.
The statement released by the agency, says that the upgrade of ALROSA's ratings primarily reflects the company's strengthened business and financial profile; Moody's expectation that its financial metrics will remain robust, despite demand and price volatility for diamonds; the company's high profitability, positive free cash flow generation and strong liquidity.
As ALROSA's principal shareholder is the government of the Russian Federation, Moody's applies its government-related issuer (GRI) rating methodology. The Ba1 CFR reflects a combination of (1) a baseline credit assessment (BCA) of ba1; (2) the Russian Federation's Ba1 local currency rating; (3) moderate default dependence between ALROSA and the government; and (4) the moderate probability of government support in the event of financial distress.
ALROSA's BCA has been raised to ba1 from ba3, reflecting the fact that its financial metrics have remained strong versus global peers and Moody's expectation that metrics will remain robust, owing to the company's status as a major producer and exporter of diamonds and weak rouble, the company's 29% share in the global diamond output, its low-cost reserve base, technical mining expertise, solid liquidity and conservative financial policy.
At the same time, ALROSA's BCA factors in the volatile demand and prices for diamonds and the company's exposure to the Russian macroeconomic environment, despite the high exports, given that its operating facilities are located in Russia.
The negative outlook is in line with the negative outlook for the sovereign rating and reflects the fact that a potential downgrade of Russia's sovereign rating may result in the lowering of Russia's foreign-currency bond country ceiling. This would result in a downgrade of the company's ratings.
There is no immediate positive pressure on the ratings given the negative outlook. In a longer term, Moody's could upgrade ALROSA's ratings if it were to upgrade Russia's sovereign rating, as well as the diamond market environment were to stabilise, and the company were to maintain its robust financial metrics, continue to generate positive free cash flow and retain solid liquidity.