Moody's cuts Concern Stirol, UkrChem outlook to negative

Moody's Investors Service said it changed the outlook on OJSC Concern Stirol's B3 corporate family rating and UkrChem Capital BV's B3 loan participation notes to negative from stable.

The change in the outlook has been prompted by the recent increase in Ukrainian gas prices to $95 from $50 per thousand cubic meters in the first half of 2006, the likely further increase in Turkmen gas prices and the significant weight of gas-related costs in Stirol's cost base and the expected impact of the price increases on operating margins, the agency said.

Moody's said the ratings continue to reflect the threat from low-cost producers from South America and India; the need for Stirol to modernize its asset base; the company's ownership structure, with one individual holding a majority interest in Stirol; the economic, political, fiscal and inflationary concerns associated with Ukraine (B1/stable) and the qualification of the company's 2003 and 2004 financial statements as a result of limited disclosure about related party transactions and the auditors' inability to audit physical inventories in 2003.

The ratings also positively reflect Stirol's leading position in the Ukrainian fertilizer business, its ability to compete on international markets due to its low cost position, the improved market conditions for Stirol, the positive long-term demand trend, the company's use of proceeds from its August 2005 loan participation notes to revamp its asset base, Stirol's strategic location and the company's limited debt loads, with expected leverage at 1.0x for 2005, the agency said.

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