Standard & Poor's: Kalina’s Rating Affected by Poor Diversity & Small Scale of Business

The rating agency Standard & Poor's upgraded the Russian cosmetics manufacturer and distributor Concern Kalina’s national scale credit rating from ruA+ to ruAÀ+ and took the company’s rating off its CreditWatch list (the rating was placed there on October 18, 2010, with Positive rating outlook). The rating was then called off at the issuer’s request, the agency reports.

‘Concern Kalina’s rating resulted from our analysis of the company’s own solvency and the presumed support from Unilever PLC (A+/Stable/A-1). This rating also takes into account Unilever’s status as Kalina’s primary owner, Kalina’s importance to Unilever (given the latter’s focus on the emerging markets), and large-scale investments Unilever made in the company it purchased (17.4bn RUR, or ?420m against Kalina’s 3.5bn RUR/?85m worth of external debts). Based on our company analysis criteria, we work with the assumption that the economic stimulus is the most important factor in determining just how strong the ties between Unilever and Kalina are,’ the agency says.

‘Kalina’s rating is badly affected by fierce competition on the Russian cosmetics and personal hygiene supplies market, the company’s low geographical diversity, and small business volume compared with its foreign rivals. We feel additional risks arise from insufficient liquidity indicators, the company’s being prone to foreign currency risks, limited financial flexibility, and poor free CFO indicators. We believe these risks are partially made up for through a stable business model, relatively high profitability, and the company’s ability to retain an impressive share of the market in the main business segments,’ Standard & Poor's reports.


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