Moody's downgrades ENRC's CFR rating and puts all ratings under review

Ratings agency Moody's on Thursday downgraded the corporate family rating (CFR) of Eurasian Natural Resources Corp. (ENRC) from B1 to Ba3 and has placed all ratings under review for further downgrade, reflecting the agency's concerns about 'recent corporate governance related developments'.

A formal investigation into the company governance, including potentially fraudulent payments of at least $100m over four years, has been launched by the Serious Fraud Office (SFO). The company said Thursday it is 'assisting and cooperating fully' with the SFO.

Moody's downgrade was also based on what Moody's sees as the continued 'uncertainty' created by a possible takeover bid by the founding shareholders, which has consequently exposed the company to risks which had not been factored into the previous rating.

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These included "greater difficulty accessing the credit and capital markets, more aggressive financial policies, loss of key personnel and a lessened commitment to the higher standards of corporate governance and transparency that were a key priority of the former Chairman", the agency said.

Moody's also downgraded ENRC's probability of default rating (PDR) to B1-PD from Ba3-PD, and consequently its provisional rating on ENRC's $3.0bn euro medium-term note (EMTN) programme to (P)B1 (LGD4, 54%).

Gianmarco Migliavacca, a Moody's Vice President - Senior Analyst and lead analyst for ENRC, said: "We have downgraded ENRC's CFR to B1 and placed its ratings on review for further downgrade because the turmoil at the board and senior management level, culminating with the recent resignation of the Chairman, in conjunction with ongoing investigations overseen by the UK Serious Fraud Office (SFO) and a possible bid by the founding shareholders to take the company private, are leading to new degrees of uncertainty and unpredictability over the future direction of the company, its financial policies and governance which are no longer in line with the previous Ba3 rating."

The agency also said that the downgrade reflects its view that ENRC's credit metrics and liquidity are "no longer commensurate with its previous Ba rating category, and are unlikely to sustainably improve in the next 12 to 18 months".

The rating review will focus on the assessment of any progress on the internal investigations regarding allegations of fraud committed by ENRC in Kazakhstan and the DRC, any further material developments regarding the company's corporate governance, as well as the terms of the possible tender offer that founding shareholders may launch in the coming weeks, and the main effects of this for the company and its investors.