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Standard & Poor’s Ratings Services has assigned its ‘B’ long-term debt rating to the proposed US$300mn five-year senior unsecured bond issue by Alrosa Finance SA, guaranteed by the Russian diamond-mining company Alrosa Co Ltd.

  • The bond rating mirrors the ‘B’ issuer credit rating on Alrosa, which is constrained by its high capital requirements, a reduction in sales, high leverage with a short-term maturity profile, and close links with the

  • Russian Republic of Sakha (Yakutia).

    The company’s capital expenditure programme is challenging, and access to long-term finance has been limited by country factors and industry regulations. S&P does not expect the government of the Russian Federation (local currency BB+/Stable/B; foreign currency BB/Stable/B) a 37% shareholder in Alrosa necessarily to provide timely and direct support if a situation of financial stress were to occur at the company. The positive factors for Alrosa’s rating include ongoing lucrative sales to the South African diamond company De Beers, which is 45% owned by Anglo American (A-/Stable/A-2), a solid position in the relatively stable diamond industry, and rich reserves although these have not been verified by a third party.

    “Standard & Poor’s expects that the proceeds from the bond issue will be used to replace existing significant short-term debt of US$559mn, or 53% of the company’s total debt as of February 1, 2003. It will significantly improve the company’s debt maturity profile and provide long-term financing to support the company’s investments,” says Standard & Poor’s credit analyst Elena Anankina.

    Standard & Poor’s believes that Alrosa’s free cashflows after capital expenditure will be limited for the next few years, and will closely monitor the company’s progress with its capital expenditure program.