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12 Mar 2014
London, 12 March 2014 -- The effects on the credit profiles of Moody's rated Russian corporates
would be positive to neutral under the scenario of a sustained 10%
drop in the rouble to around RUB36.5 per US dollar from RUB33.2
at the start of 2014, says Moody's Investors Service in a
Special Comment report published today.
The rating agency has considered the likely implications of the aforementioned
scenario to demonstrate the rated companies' exposure to currency
depreciation in isolation from other factors. This consideration
comes against the backdrop of a weakening of the rouble on 3 March to
RUB36.4 against the US dollar, when tensions between Russia
and Ukraine escalated, exacerbating months of pressure on the currency.
Moody's report, entitled "Russian Corporates:
Ukraine Dispute Intensifies Pressure on Rouble with Mixed Credit Effect
for Russian Businesses", is available on www.moodys.com.
"The creditworthiness of chemical companies would benefit the most
from a weaker rouble, as at least 50% of their revenues are
in US dollars, while their cost bases are mainly in roubles,"
says Denis Perevezentsev, a Moody's Vice President-Senior
Analyst and co-author of the report. "The majority
of steel and mining companies would gain moderately, while the effect
on the oil and gas sector would be neutral. Most rated issuers
in other sectors have limited exposure," continues Mr.
In its report, Moody's notes that there is a risk that the
rouble may fall further given the growing geo-political uncertainties.
However, the Central Bank of Russia (CBR) has raised its key interest
rate by 150 basis points to 7% from 5.5% and increased
interventions on the foreign exchange market, which limits downside
risks for the rouble. Subsequent Moody's reports on Russian
corporates will take into account the credit implications of a possible
step-up in inflation, a weaker macroeconomic environment
or challenges in accessing the financial and debt capital markets as a
result of the evolving developments regarding Ukraine, such as from
the potential imposition of economic sanctions by the US and European
Moody's anticipates that the credit positive effect from a weaker
rouble would be greater for fertilizer companies within the chemicals
sector, such as JSC Acron (B1 stable), OJSC PhosAgro (Baa3
stable) and OJSC Uralkali (Baa3 negative), than for petrochemical
companies OJSC Nizhnekamskneftekhim's (NKNK, Ba3 positive) and Sibur
Holding, OJSC (Ba1 stable), as a lower proportion of their
debt and capital expenditure (capex) is in US dollars.
Moody's expects that coking coal mining companies, such as
Mechel OAO (B3 negative) and Raspadskaya OAO (B2 stable), would
experience the greatest positive effect on EBITDA (+30%-40%),
albeit from a low base, as they are currently generating only thin
margins over their production costs, owing to weak coking coal prices.
This is because the cost bases of these companies in roubles would decrease
relative to their revenue streams, as domestic prices for coking
coal in roubles are indirectly linked to the international benchmark price,
which is set in US dollars. A weaker rouble would be credit positive
for rated steel and mining companies and increase their EBITDA by around
10%-15% with the exception of OAO TMK (B1 stable)
and Magnitogorsk Iron & Steel Works (MMK, Ba3 stable),
which would experience a less material credit impact as the proportion
of their revenues denominated in roubles broadly matches their expenses
denominated in roubles. The debt of most rated Russian metals and
mining companies would remain stable or slightly fall, resulting
in a moderate improvement in leverage measured as debt/EBITDA.
In its report, Moody's projects that companies with a higher
proportion of export sales, rouble operating costs, and rouble-denominated
debt, would be better positioned to withstand a depreciation.
Although most oil and gas producers have a high proportion of foreign
currency debt, their US dollar-denominated revenues would
provide a natural hedge, with OSJC Oil Company Rosneft (Baa1 stable)
being cushioned more than OJSC Gazprom (Baa1 stable), Gazprom Neft
JSC (Baa2 stable) and OAO Novatek (Baa3 stable). Conversely,
Bashneft's (Ba2 stable) leverage would improve because it generates
60% of its revenues from exports, while less than 10%
of its debt is in foreign currency.
In addition, Moody's notes that most freight rail transportation
companies' revenues, operating and capital expenses are mainly
in roubles, while their debt is either in roubles or hedged against
rouble depreciation. Brunswick Rail Limited (Ba3 negative) and
ISR Trans LLC (B3 stable) are more vulnerable because they have a higher
proportion of foreign currency borrowing.
In the mobile sector, Vimpel-Com Holdings B.V.
(VimpelCom, Ba3 stable) has a higher exposure to a weaker rouble
than MegaFon OJSC (Baa3 negative) and Mobile TeleSystems OJSC (MTS,
Ba2 positive) because of its greater proportion of foreign-currency
debt. The exposure of retailers Lenta Limited (B1stable) and X5
Retail Group N.V. (B2 stable) would be limited to import
purchases, which Moody's think they could largely mitigate
by passing on the costs to their suppliers and/or end-consumers,
and a possible reduction in domestic demand.
Overall, Moody's would not expect a sustained 10% depreciation
of the rouble alone to have a material impact on the credit metrics of
rated utility and infrastructure companies. The majority of these
companies (in particular electricity grid businesses) have avoided a material
mismatch in currencies, raising debt mainly in the same currency
that they generate their revenues (i.e. roubles).
In cases where companies have exposure to a weaker rouble, it is
mitigated by some natural hedge or hedged debt, long-term
debt maturity profile and sizeable foreign currency cash reserves.
Subscribers can access this report via this link: https://www.moodys.com/research/Russian-Corporates-Ukraine-Dispute-Intensifies-Pressure-on-Rouble-with-Mixed--PBC_165781
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Moody's: Rouble devaluation scenario positive for some Russian corporates, neutral for others
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