Moody’s international rating agency has upgraded Eurasian Resources Group’s (ERG) rating due to the stable improvement of the company’s results. However, the success factors listed by the analysts lack something major.

On August 9, 2018, Eurasian Resources Group (ERG) published the press-release called “Eurasian Resources Group achieves credit rating upgrade from Moody’s; outlook positive”. Here is the entire text of the release (text in bold by kz.expert).

“Eurasian Resources Group (ERG), a leading diversified company in the sphere of natural resources extraction and refinement, achieves credit rating upgrade from Moody’s to B2; outlook positive. A little earlier, on June 27, 2018, Standard&Poor’s also upgraded ERG’s rating to B. In both cases, the agencies based their decisions on the stable improvement of the financial and operational results of the company.

Moody’s cited ERG’s ‘standalone credit strength’ through the reduction of its debt and improvements in its financial metrics including EBITDA and liquidity levels as a major factor for the upgrade. 

The rating agency also noted a number of other contributing factors for the upgrade, including:

- ERG’s access to high quality mining assets and its competitive cost structures;

- strong operational and product diversification;

-the solid market position it commands in EMEA for ferrochrome, iron ore and aluminium;

- the 90% share of exports in total revenue and the strength and diversity of its customer base.

Moody’s also indicated the high likelihood of further improvements in ERG’s credit profile in the next 12-18 months - in particular, following the forthcoming commissioning of the Metalkol Roan Tailings Reclamation (RTR) project, a comprehensive low-cost hydro-metallurgical facility to reprocess old cobalt and copper tailings in the Democratic Republic of the Congo.

Alexander Machkevitch, Chairman of the Board of Directors at ERG, said: “The second consecutive credit rating upgrade represents an important positive milestone in the Group’s ceaseless commitment to strengthening its operations across all of its key regions. As a result of the hard work and dedication of ERG’s highly professional and solid team, and with a continued focus on efficiency, ERG has achieved strong financial results and will continue to strive to do so. The outlook on both ERG’s credit profile and the wider commodities market is positive, and on that basis we believe we will remain at the forefront of the global mining industry.”

Let us draw the reader’s attention to the fact that the press-release consciously omits one more positive factor that has crucially influenced the improvement of the company’s financial results. We are talking about the direct, multifaceted, and comprehensive support that ERG had received and continues to receive from the Kazakhstan authorities and President Nazarbayev himself.

For example, in August 2013, the State Property and Privatization Committee approved the initiative of Alexander Mashkevich, Alidzhan Ibragimov, and Patokh Shodiyev to buy out the shares from the minority shareholders which allowed Eurasian Natural Resources Corporation Plc (ENRC) to delist and leave the London Stock Exchange.

At that point, Moody’s Investors Service reacted by lowering ENRC’ corporate rating from B1 to B2, outlook negative. Apart from that, the default probability rating and the preliminary rating of the ENRC 3 bln euro medium-term bonds were also lowered.

Then, the State Property and Privatization Committee took an active participation in the creating (or rather re-registering under a new name) of a business-structure that is now known as Eurasian Resources Group (ERG) and handing over the enterprises and business-projects from Eurasian Natural Resources Corporation Plc (ENRC) to this new company.

The document issued on June 24, 2013, says, “the capital stock of the Holding company consists of 25 000 class A shares and of 37 500 class B shares. The shares of classes A and B have equal economic and voting rights. The State Property and Privatization Committee owns 25 000 class A shares (40% of the issued share capital of the Holding company)”.

What is more, the state aided ERG with additional assets. In June 2013, National Welfare Fund Samruk-Kazyna handed over 58876793 of the Kazakhmys shares to the State Property and Privatization Committee. The latter then put 139162843 of the shares into ERG capital stock.

Moreover, based on the insider information, Nursultan Nazarbayev had personally assisted ERG in receiving the funds from the Russian state banks that the company desperately needed. In May 2013, he personally spoke with Head of Sberbank German Gref and, in June, in his Borovoy resort residence, the President discussed this issue with Cnairman of Bank VTB Andrey Kostin. As a result, VTB gave US $1 bln loan to the “Eurasians” while Sberbank gave $700 mln.

Earlier, state holding Samruk-Kazyna National Welfare Fund had obtained US $2 bln loan from China Development Bank which was then given to ENRC.

Here is what Kayrat Kelimbetov said on the subject. “Here we have the loan given by China Development Bank to the state bank so that the Fund would finance ENRC to modernize Sokolov-Sarbai Mining Production Association (SSGPO) and Kazchrome”.

And, finally, Akorda has played an important albeit carefully concealed from the civil society role in the fact that the investigations conducted by the British authorities (including Serious and Organized Crime Agency) on the basis of the materials received from the former ENRC legal sub-contractor, Dechert, have had little success even though they have been underway for many years.

In conclusion, we will note that the state’s share in ERG is not up for sale even though Akorda has been pursuing the policy of decreasing the state’s share in the economy for several years. Perhaps the reason lies in the desire of the Kazakhstan authorities to have the levers of influence over ERG’s co-owners and managers. Because, if we are to believe the information on ERG’s official website, this company de-facto constitutes one third of the country’s metal mining industry.

By the way, Bakhyt Sultanov and Beybut Atamkulov who represent the Republic of Kazakhstan’s interests in ERG have been members of the corporation’s Management Council since 2013. Note that the former took the position while the Deputy Head of Presidential Administration and kept it as the Minister of Finance. The latter began his career in ERG as the Executive Secretary of the Ministry of Industry and New Technologies which was quite in sync with the bureaucratic logic but continues to perform his duties as the Minister of Defense and Aerospace Industry which, in and of itself, is nonsense.