First-time rating
Moscow, December 06, 2012 -- Moody's Interfax has today assigned a national scale rating (NSR)
of Aa3.ru to RussNeft, an oil and gas exploration and production
company in Russia. This is the first time that Moody's Interfax
has assigned ratings to RussNeft.
The rating action is based on RussNeft's audited financials under
International Accounting Standards for 2011, 2010 and 2009,
and information provided by the company's management.
Please see ratings tab on the issuer/entity page on moodys.com
for information on Global Scale Rating.
RATINGS RATIONALE
The Aa3.ru rating assigned to RussNeft reflects (1) the considerable
size of the company's reserves and scale of operations by global
standards, mapping to the Baa rating factor on Moody's global
scale; (2) the company's demonstrated track record of improving
operating efficiency and reserves management over the past three years;
and (3) its conservative financial policies and deleveraging strategy.
However, Moody's also notes RussNeft's (1) complex organisational
structure, whereby significant minority interests (up to 49%)
at the key operating subsidiaries are held by the company's strategic
partner Glencore International AG (Baa2 stable), which also benefits
from exclusive offtake rights on RussNeft's oil exports; (2)
semi-permanent shareholder structure, which is likely to
undergo further changes in the medium term; (3) geographically dispersed
reserves base, consisting of relatively modest deposits and requiring
efficient logistics arrangements; and (4) weaker financial positioning
in the Ba global scale rating category on the compared with its Russian
oil and gas sector peers, primarily due to higher-than-sector-average
leverage, measured by debt/EBITDA, of 1.0-1.5x
(RussNeft's leverage as adjusted by Moody's was at 3.34x
as of year-end 2011). RussNeft's total debt of more
than $5.0 billion as at year-end 2011 exerts pressure
on the company's interest coverage metrics, and debt covenants
constrain its financial and operating flexibility and limit investment
opportunities.
However, Moody's notes that RussNeft's current debt
capital structure stems from its history of ownership changes in the period
2002-10 and does not reflect its previous operating inefficiencies
and/or imprudent financial policies. The financing arrangements
between the company's major creditors -- Glencore
and Russia's largest state-owned bank Sberbank (A3 stable)
are long-term and provide for a comfortable debt service schedule
without refinancing peaks.
Provided that global oil prices remain at the levels currently anticipated
by Moody's (the rating agency currently expects that the Brent crude
will be priced at an average of $100 per barrel in 2013,
$95 per barrel in 2014, and $90 per barrel in the
medium term, beyond 2014), Moody's believes that RussNeft
will be able to cover its operating, investment and financing needs
through internally generated cash flows. RussNeft does not have
any large committed investment projects, and would therefore be
able to significantly curtail its capex programme to support debt service,
in the event of any significant deterioration in global oil prices.
Moody's also notes, that third-party senior unsecured
debt, if raised by the company, would be assessed by the agency
for its relative positioning within the company's capital structure
and potential subordination, given the existence of substantial
minority interests at the key operating subsidiary levels.
Moody's says the stable outlook on the global scale ratings assumes
that RussNeft will maintain (1) its conservative financial policy and
leverage, measured by debt/EBITDA, not exceeding 3.5x
on a sustainable basis; and (2) its retained cash flow (RCF)/net
debt above 15%-20%. The ratings do not take
into account the possibility of debt-financed bolt-on acquisitions,
which Moody's would assess separately for their effect on the ratings.
WHAT COULD CHANGE THE RATING UP/DOWN
RussNeft's ratings are adequately positioned in the current rating
category. Upward pressure would be exerted on the ratings if the
company (1) reduces its leverage to below 2.0x debt/EBITDA;
and (2) sustainably maintains cash flow coverage, measured by RCF/debt,
above 35%. Conversely, downward pressure would be
exerted on the ratings should there be negative migration of the metrics
as a result of internal inefficiencies and/or unfavourable market conditions,
or due to any developments that negatively affect current creditor/shareholder
arrangements and financial policies.
PRINCIPAL METHODOLOGY
The principal methodology used in rating RussNeft was the Global Independent
Exploration and Production Industry Methodology published in December
2011. Please see the Credit Policy page on www.moodys.com
for a copy of this methodology.
Moody's Interfax Rating Agency's National Scale Ratings (NSRs) are
intended as relative measures of creditworthiness among debt issues and
issuers within a country, enabling market participants to better
differentiate relative risks. NSRs differ from Moody's global scale
ratings in that they are not globally comparable with the full universe
of Moody's rated entities, but only with NSRs for other rated debt
issues and issuers within the same country. NSRs are designated
by a ".nn" country modifier signifying the relevant
country, as in ".ru" for Russia. For further
information on Moody's approach to national scale ratings, please
refer to Moody's Rating Methodology published in October 2012 entitled
"Mapping Moody's National Scale Ratings to Global Scale Ratings".
ABOUT MOODY'S AND MOODY'S INTERFAX
Moody's Interfax Rating Agency (MIRA) specializes in credit risk analysis
in Russia. MIRA is a joint-venture between Moody's Investors
Service, a leading provider of credit ratings, research and
analysis covering debt instruments and securities in the global capital
markets, and the Interfax Information Services Group. Moody's
Investors Service is a subsidiary of Moody's Corporation (NYSE:
MCO).
Headquartered in Moscow, RussNeft is one of Russia's largest
oil and gas exploration and production companies, with proven and
probable oil and gas reserves of more than 1,751.2 billion
barrels of oil equivalent as per PRMS- SPE classification,
and production of 13.6 million tonnes of oil in 2011. Russneft
is 49% is owned by its founder Mr. Mikhail Gutseriev,
49% by Sistema Joint Stock Financial Corporation (Ba3 stable),
and 2% by Sberbank of Russia via its subsidiary Sberbank Capital.
In the FY2011 Russneft reported $5.6 billion in revenue
and $1.68 billion in EBITDA under audited International
Accounting Standards.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
Information sources used to prepare the rating are the following:
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information.
Moody's considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing
a rating.
Moody's adopts all necessary measures so that the information it
uses in assigning a rating is of sufficient quality and from sources Moody's
considers to be reliable including, when appropriate, independent
third-party sources. However, Moody's is not
an auditor and cannot in every instance independently verify or validate
information received in the rating process.
Please see the ratings disclosure page on www.moodys.com
for general disclosure on potential conflicts of interests.
Please see the ratings disclosure page on www.moodys.com
for information on (A) MCO's major shareholders (above 5%) and
for (B) further information regarding certain affiliations that may exist
between directors of MCO and rated entities as well as (C) the names of
entities that hold ratings from MIS that have also publicly reported to
the SEC an ownership interest in MCO of more than 5%. A
member of the board of directors of this rated entity may also be a member
of the board of directors of a shareholder of Moody's Corporation;
however, Moody's has not independently verified this matter.
Please see Moody's Rating Symbols and Definitions on the Rating Process
page on www.moodys.com for further information on the meaning
of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time
before Moody's ratings were fully digitized and accurate data may not
be available. Consequently, Moody's provides a date that
it believes is the most reliable and accurate based on the information
that is available to it. Please see the ratings disclosure page
on our website www.moodys.com for further information.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Julia Pribytkova
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Limited, Russian Branch
7th floor, Four Winds Plaza
21 1st Tverskaya-Yamskaya St.
Moscow 125047
Russia
Telephone: +7 495 228 6060
Facsimile: +7 495 228 6091
David G. Staples
MD - Corporate Finance
Corporate Finance Group
Telephone: 00971 4237 9536
Releasing Office:
Moody's Interfax Rating Agency
7th floor, Four Winds Plaza
21 1st Tverskaya-Yamskaya St.
Moscow 125047
Russia
Telephone: +7 495 228 6060
Facsimile: +7 495 228 6091
Moody's Interfax assigns Aa3.ru NSR to RussNeft
