Fitch Affirms MMK at ‘BB’; Outlook Stable

Fitch Ratings-London/Moscow-25 April 2008: Fitch Ratings has today affirmed Magnitogorsk Iron and Steel Works’ (MMK) Long-term Issuer Default (IDR) and senior unsecured ratings at ‘BB’. The Outlook for the Long-term IDR is Stable.
MMK’s ratings continue to be supported by its strong operational profile, including its scale as the largest flat products producer in Russia, low operating costs and high plant productivity due to significant modernisation in recent years. The ratings also reflect MMK’s continuing high profitability (FYE07 EBITDAR margin of 29%) – albeit lower in percentage terms than peers such as NLMK ('BB+'/'B'/Stable) and Evraz ('BB'/'B'/Stable) – and a conservative capital structure with average gross leverage over the past four years of 0.6x. Fitch believes that MMK management remain committed to a conservative financial profile in coming periods including maintenance of gross debt/EBITDAR below 1.5x throughout the steel price cycle. The agency also believes that MMK will continue to focus on organic growth and abstain from large scale M&A activity. Over the next 12-18 months, Fitch believes that the demand and price environment within Russia for steel producers should also remain supportive.