OREANDA-NEWS  On 07 October Credit-Rating, a nationally recognized credit rating agency in Ukraine announced that it downgraded to uaBB from uaBBB- the long-term credit rating assigned to registered coupon bonds (series A) issued by Volyn Oblast-based Kovelmoloko OJSC (`issuer` or `company`). The amount of the issue is UAH50m, with 3-year original maturity. The company`s principal activity is milk processing and production of dairy goods. To revise the rating, Credit-Rating considered issuer`s financial statements for 2004-2007 and 1H2008 and its other inside information.

An obligor or a debt liability with uaBB credit rating is characterized with the LOWER THAN SUFFICIENT creditworthiness as compared to other Ukrainian obligors or debt liabilities. This level of creditworthiness is strongly affected by adverse changes in commercial, financial and economic conditions.

Factors maintaining the credit rating

Issuer`s strong positions on the domestic dairy market, which produce is sold under Optimal, Gurmanika and Molochnaya Semya trademarks.

Growth in issuer`s key performance indicators recorded in the past few years, specifically in 1H2008 as compared to the similar period in 2007: the net revenues from sales rose by 54% to UAH180.2m, and the EBITDA advanced by 36.5% to UAH10.6m

Factors constraining the credit rating

The issuer`s debt liabilities have almost doubled in 1H2008: according to results of FY08 ended on June 30, 2008, the issuer`s consolidated debt exceeded its EBITDA 5.4x, and that had not been envisaged in the company`s financial plans.

A significant part of issuer`s property is pledged as security for bank loans.

The issuer does not have own sources for raw materials supply.

Seasonality in production process, and issuer` vulnerability to state support of the agricultural sector and to competition in the dairy segment.