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«SIBUR» LLC is the managing organization of PJSC «SIBUR Holding».

117218, Moscow, Krzhizhanovsky st., 16/1

SIBUR monitoring debt market for opportunities

Sibur Holding, a Russia-based petrochemicals company, is monitoring the international debt markets for an opportunity to optimise its credit portfolio, although the company does not face any major debt repayments until 2022-2023, Chief Financial Officer Alexander Petrov said during an interview with Debtwire.

"We are following the market closely, and if there is an opportunity to reduce our average interest rate or extend our maturity profile, we might consider a transaction,” Petrov said.

The company raised RUB15bn 5.5% domestic bonds in May, taking advantage of the favourable market following the central bank’s soft rhetoric indicating possible further rate cuts. The Bank of Russia slashed its base rate by 50bps to 5.5% at the end of April and analysts expect the rate could be cut by another 50bps-100bps by the end of this week.

Sibur had a registered domestic bond program totalling RUB 25bn and it was a swift decision to issue the notes, Petrov said, adding that the company holds the record for the lowest corporate yield in the domestic market, with the notes trading around par after the placement.

Emerging markets have enjoyed a surge in demand since June, pushing paper to trade back up to January-February levels, and some corporates have decided to tap investor appetite with new supply.

Russian diamond miner Alrosa priced a USD 500m 3.1% 2027 Eurobond at par yesterday (17 June) and Sibur’s management has been following the transaction with interest, Petrov noted. Another attractive opportunity for Russian issuers is to borrow in rubles and swap them into US dollars, which can also be considered, he added.

Sibur’s debt profile has an average tenor of 5.7 years, with the company relying on long-term project finance debt having a gradual maturity schedule, according to its 1Q20 earnings presentation. The company had RUB 46bn of cash and RUB 63bn of committed credit lines at the end of the quarter with only RUB 16bn of maturities remaining in 2020.

It has to repay RUB 43bn next year, RUB 69bn in 2022, RUB 75bn in 2023, and RUB 60bn in 2024, with smaller payments thereafter until after 2029, when a RUB 136bn financing will become due.

Earnings weaker but margin still high

To reduce the effect of the coronavirus pandemic on the company's business, Sibur launched a large-scale cost optimisation programme, trimmed its FY20 capex plan by 40% and began implementing a cash preservation policy.

In the first three months of 2020, its capex decreased by 30.4% year- on-year to RUB 25.749bn, mostly due to lower financing of ZapSibNeftekhim (ZapSib), a new petrochemical facility in Tobolsk that was launched in September last year.

Sibur’s EBITDA decreased by 15.2% to RUB 37bn in 1Q20 compared to the same period a year ago, "on tighter spreads across all segments due to the negative pricing dynamics on international markets.” "This factor was somewhat compensated in the Olefins and Polyolefins segment by higher sales volumes following the launch of ZapSibNeftekhim,” the company said in its 1Q20 earnings statement.

ZapSib reached 68% production capacity at the end of 1Q20, which is ahead of schedule for the industry benchmark, Petrov noted. It typically takes six to 18 months to bring a new enterprise to full capacity in a stable market environment. The complex might be operating close to its full capacity by year-end, the CFO added.

Although Sibur’s earnings weakened in the first quarter, the margin is still above the average for the industry, Petrov said, adding that the company managed to maintain its EBITDA margin above 30% while industry peers" margins have fallen to 10%-20%.

"April was the most dramatic month for the industry, but we saw a recovery in May,” Petrov said, noting that the company has not reduced its production due "to securing stable demand from its clients and enjoying margin headroom to justify economic rationale."

As of 31 March 2020, the company's total debt increased by 29.9% quarter-on-quarter to RUB 493bn, mainly attributable to the Russian ruble depreciation against the US dollar and euro, the company said in its earnings statement. The net leverage in ruble terms increased to 2.7x from 2.1x, while the increase of net leverage in US dollar terms was to 2.3x from 2.2x.

The prospectus for Sibur’s USD 500m 4.125% 2023 notes, issued in 2017, stipulates a net leverage covenant of 3.5x with a carve-out option for debt with a tenor of over 15 years. The exemption means around USD 2bn of debt had not been included into the calculation bringing the covenant ratio just above 4x, Petrov said, noting that the covenant is no longer relevant after the company received an investment grade rating.

Other indebtedness has a similar leverage covenant ratio, giving the company plenty of headroom, he added.

Fitch upgraded Sibur’s rating to BBB- in June last year, Moody’s upgraded the company to Baa3 in January 2018 while S&P Global assigned BBB- rating last August.

Funding for Amur GCC

Sibur has also been getting ready to implement construction of the long-awaited Amur Gas Chemical Complex (Amur GCC) worth more than USD 10bn, depending on the configuration.

Sibur Holding and China Petroleum & Chemical Corporation (Sinopec) signed a term sheet for a potential joint venture for the complex in June last year, giving the Chinese company a 40% share in the project.

Sinopec’s board of directors approved the project but the venture is yet to be finalised, Petrov said. The partners are also yet to make their final decision for the project configuration depending on the feedstock base - whether it will be ethane or ethane and liquefied petroleum gases, with the latter being a possible subject for a negative excise tax pending regulatory approval.

Sibur has been in touch with banks providing project advisory services regarding the sources of financing, Petrov said. "The deal is expected to be funded on a debt-to-equity industry benchmark of plus-minus 70/30,” he added.

Amur GCC will be built in the Far East region and will have a capacity of 1.5 mtpa of ethylene to be transformed into polyethylene grades to meet Chinese and South-Asian demand.

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