Fitch downgrades Severstal rating to BB-, places on rating watch negative

 Fitch Ratings has downgraded Russian steelmaker Severstal to BB- from a BB and has simultaneously placed the company on Rating Watch Negative (RWN).

“The downgrade and RWN reflect Fitch’s view that Severstal’s profitability and credit metrics will deteriorate in 2009-2012 to levels that are not consistent with a ‘BB’ rating,” Fitch said.

“Ebitda margin dropped to -5.7% and 7.4% in Q1 09 and Q4 08 respectively, from an average 23%-24% in 2006-2008. Fitch forecasts that Ebitda margin will remain in single digit in 2009-2010,” the agency added.

The downgrade follows investment bank UBS’ Friday report that it expected Severstal’s foreign assets would generate $400 million of negative Ebitda in 2009, due to high costs and low utilisation. The bank also downgraded Severstal’s Ebitda estimates for 2009-2011 by 47-68% and expected that the company would report net losses in 2009 and in 2010.