OREANDA-NEWS. Fitch Ratings has today upgraded Magnitogorsk Iron and Steel Works's ("MMK") Issuer Default and senior unsecured ratings to 'BB' from 'BB-' (BB minus). The Outlook on the Issuer Default rating remains Stable.

"The rating upgrade reflects the modernisation of MMK's plant resulting in greater operational efficiency, sustainable low leverage and strong liquidity, and improved transparency regarding ownership of the company," says Peter Archbold, Director of Fitch's EMEA Industrials team.

MMK has a high level of profitability (FY05 EBITDAR margin of 28%) and has maintained a conservative financial structure over the past three years with gross leverage of 0.4x at FYE05. An ongoing focus on higher value-added steel products, together with improving operational efficiency and lower production costs as a result of MMK's plant modernisation, should enable the company to maintain a conservative financial profile, including gross leverage of below 1x, even if a moderation in steel prices were to occur.

The Stable Outlook reflects Fitch's expectation that MMK's low-cost operating position in Russia, the efficiency of its operations and a favorable bargaining position relative to certain raw material providers will enable it to maintain strong operating margins and a conservative financial structure despite a potential moderation in steel prices. The Outlook also factors in a reduction in dividend payments from FY07 onwards.