Standard & Poor's has placed for review the long-term rating of MMC Nornickel BBB- with a “negative” outlook, the rating agency said in a statement. The revision is related to the company’s proposal to Rusal to buy out its 25% plus one share in MMC for $12 billion, which is almost 15% higher than the market value of the blocking stake. “The negative outlook reflects our view that if the proposal, valid until December 28, 2010, is accepted, Norilsk Nickel’s financial performance may be at levels inconsistent with its BBB- rating,” explains Standard & Poor’s credit analyst Elena Anankina . According to her, the deal could negatively affect the liquidity of MMC, since it is unclear how it will be financed.

Previously, Norilsk Nickel claimed that this proposal had already been worked out at a meeting of the board of directors, taking into account consultations with JPMorgan, Morgan Stanley , Goldman Sachs, Societe Generale, UBS, Deutsche Bank and HSBC, which “expressed their interest and willingness to participate in financing the transaction” .

But even if the deal does not go through, Norilsk Nickel's ratings may be in danger of being downgraded. “In our opinion, the company’s financial policy has become less conservative with regard to possible changes in the current supply and the overall level of debt,” Anankina added.

Standard & Poor's expects Norilsk Nickel's EBITDA to increase in 2010 after a decline last year. “For the year ended June 30, 2010, Norilsk Nickel generated EBITDA in the amount of $6.4 billion compared to $4.4 billion in 2009,” the agency said in a statement. At the same time, adjusted gross debt decreased to $4.1 billion as of June 30, 2010 from $6.1 billion at the end of the year.

A positive factor for Norilsk Nickel is its extensive reserves of high-quality raw materials, which ensures low costs and, accordingly, helps maintain the profitability of the mining and metals industry, according to Standard & Poor's.

“Norilsk Nickel's ratings will be withdrawn from CreditWatch once it has been determined whether the transaction will go through, what the final terms of the transaction will be, and what Norilsk Nickel's future strategy will be in relation to reducing its debt burden through the sale of its own shares and assets or through management of discretionary cash flow,” Anankina emphasized.

S&P may lower Norilsk Nickel rating