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Expert RA affirmed credit rating of AGD DIAMONDS at ruBB +

22 may 2020
The Expert RA rating agency extended the “under supervision” status for the credit rating of AGD DIAMONDS. The company rating remains at ruBB + with a stable outlook.
AGD DIAMONDS is developing the Grib Diamond Field in the Arkhangelsk Province. The company can be described as a full-cycle diamond mining enterprise (engaged in exploration, production and sales), Expert RA said.
The company sells most of its products through a subsidiary trader, Grib Diamonds NV at auctions using its own electronic trading platform in Antwerp, the global diamond trading center.
In the second quarter of 2017, Otkritie Industrial Investments LLC, which is part of the Otkritie Group, closed a deal to acquire 100% of the company’s shares from the LUKOIL Group. The transaction was partially financed by funds borrowed from the VTB Bank.
However, in February of this year, Otkritie Holding JSC, formally acting as the sole owner of Otkritie Industrial Investments LLC (100% shareholder of AGD DIAMONDS JSC), initiated bankruptcy proceedings. In addition, creditors – including Trust Bank PJSC and VTB Bank PJSC - filed a lawsuit against Otkritie Holding JSC. These circumstances could potentially lead to a change in the controlling party for AGD DIAMONDS JSC.
Nevertheless, servicing and repayment of the loan is carried out at the expense of the company's operating cash flow. The loan was taken by Otkritie Industrial Investments LLC from VTB Bank (PJSC) (lender), and the company had previously provided the lender with a guarantee to secure this loan, which the agency considers as part of the company's debt obligations.
Thus, the extension of the “under supervision” status is due to both the continuing uncertainty regarding the further course of the bankruptcy proceedings started by Otkritie Holding JSC and the possible change in the controlling party for AGD DIAMONDS JSC, as well as the growing imbalance in the diamond market against the backdrop of the pandemic, Expert Ra said. The agency does not rule out a change in the profile of the company's debt burden and plans to continue monitoring the market situation, which can significantly affect the company's cash flows. The agency also plans to reassess the creditworthiness of the company due to the critical need of the group to make the lender review the company shareholder’s payment schedule and the need to extend the final repayment period for the loan. According to the agency, the negotiations of the group with the creditor are currently in an active stage. Based on the results of the upcoming analysis, the agency does not exclude a review of the company’s current credit rating.
Due to the continuing crisis in the diamond market and the high level of market uncertainty associated with the coronavirus pandemic, prices and demand for rough diamonds are falling, while the closure of borders between countries, suspension of exchanges, and the introduction of quarantine measures have led to a global freeze of the diamond supply chain. So, any future sales will largely depend on the epidemiological situation and the measures taken.

Victoria Quiri, Correspondent of the European Bureau, Rough & Polished, Strasbourg