Fitch Ratings says OAO Severstal's (Severstal) decision to separate Nord Gold N.V. (Nord Gold) is neutral to its ratings.
On 30 November 2011 Severstal announced the proposed separation of Nord Gold through the exchange of shares and GDRs. The separation is expected to be completed by late January 2012.
Fitch notes the marginally negative effect of Nord Gold's separation on the company's operational profile. In the first half of 2011 Nord Gold, with a 6.7 percent share in Severstal's total revenue, generated 13.1 percent of Severstal's total EBITDA, according to company reports. The gold segment allowed Severstal to reduce margin volatility through the cycle, as gold has counter-cyclical price dynamics in contrast with pro-cyclical prices of steel, iron ore and coking coal.
Fitch expects that the separation of Nord Gold will result in a decrease of Severstal's EBITDAR margin in 2012 to 20 percent vs. previously expected 22 percent, and an increase of net EBITDAR leverage by end-2012 to 1.5 times to 1.6 times vs. previously expected 1.4 times. These credit metrics are in line with Fitch's guidelines for 'BB' category rated steel companies.