OREANDA-NEWS.  July 31, 2012. Standard & Poor's Ratings Services said that it had assigned its 'B-' long-term corporate credit rating to Kazakh generic pharmaceuticals manufacturer Chimpharm JSC. The outlook is positive, reported the press-centre of KASE.

At the same time, we assigned 'B-' issue ratings to Chimpharm's proposed KZT10 billion unsecured notes. The recovery rating on this debt is '4', indicating our expectation of average (30%-50%) recovery for creditors in an event of payment default.

The rating action follows our announcement on July 12, 2012 when we assigned our 'kzBB' Kazakhstan national scale rating to Chimpharm and the proposed notes.

The ratings reflect our assessment  of Chimpharm's business risk profile as "vulnerable", mainly due to its relatively small size, and political risk in the Republic of Kazakhstan (BBB+/Stable/A-2), its main market. Other business risks are Chimpharm's lack of geographic diversity and reliance on public funds and distribution capabilities in an evolving domestic health care system.

Positive factors are Chimpharm's position in the Kazakh pharmaceutical market as the leading domestic producer, by volume, of mainly generic drugs and medicines. Our view of Chimpharm's credit metrics is another support for the ratings. Leverage was very low at the end of 2011, with the company's debt totaling KZT1.2 billion (about USD 8 million). Chimpharm operating margin (EBITDA) was relatively high at 33% in 2011. We project margins will decline over the next few years, as selling and marketing expenses will likely outpace the expected strong improvement in the gross margin following the company's planned expansion. However, the increase in selling and marketing expenses is unlikely to be material and mainly reflects the need to adapt to new business conditions under a recently signed exclusive supply contract between Chimpharm and the domestic market regulator.