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Announcement:

Moody's: Uncertainty over long-term legacy overshadows benefits of Sochi Winter Olympics

 The document has been translated in other languages

Global Credit Research - 05 Feb 2014

London, 05 February 2014 -- Russia's Winter Olympics city and region, Sochi and Krasnodar Krai respectively, have benefited from government funding for the 2014 Winter Olympic and Paralympic Games, but are likely to face growing fiscal pressures in the longer term, says Moody's Investors Service in a Special Comment published today. In addition, the credit impact of the Games for Russian companies will be mixed, with Russia unlikely to get any related macroeconomic boost in 2014.

The report, entitled "Sochi 2014 Winter Olympics: Uncertainty over Long-term Legacy Overshadows Benefits", is available on www.moodys.com. Moody's subscribers can access this report via the link provided at the end of this press release.

The report provides an overview of the costs associated with the event, and evaluates the likely long-term credit legacy of the Games from the perspective of the Russian sovereign, sub-sovereigns, global and domestic corporates and Russian banks.

Moody's notes that the Games are credit neutral for the Russian sovereign (Baa1 stable) given that they are unlikely to provide the country with a macroeconomic boost in 2014. Most of the effects from their construction have already been felt and were mainly realised at the regional level. Moody's says that the central government can accommodate its share of the cost; however, the high cost of the event and other negative publicity have limited the reputational benefits of hosting the Olympics.

Moody's says that both the City of Sochi and Krasnodar region (Krai) have benefited by winning government funding for infrastructure upgrades. However, growing fiscal pressures will weigh on their credit profiles because of (1) the cost of maintaining Games-related facilities once the Olympics have ended; and (2) the uncertainty as to whether these regeneration efforts will sufficiently boost revenues from tourism and other areas.

Moody's notes that the credit impact of the Games is more mixed for Russian corporates. They are likely to be credit neutral for state-run companies because they already have strong brand recognition and their outlay is small compared to their revenue bases. Food and non-food retailers as well as other sectors servicing the Olympics, such as logistics providers, are likely to report a boost in sales during the event. However, Moody's highlights that, for the most part, the effects will be a one-off and consequently will not affect ratings. Telecoms providers are likely to see a quick return on their investments by tapping pent-up local demand, while certain electric utilities will likely benefit marginally from largely government-funded infrastructure upgrades.

By contrast, Moody's believes that the Russian hotel sector is vulnerable as a massive increase in the supply of rooms coupled with stiff competition from other resorts creates uncertainty over the long-term prospects for Sochi's tourism industry. However, the Games are credit positive for worldwide sponsors, as deals grant the holders exclusive worldwide marketing rights in specific product categories. The growing popularity of digital interactive viewing via computers and smartphones is also providing an opportunity for media companies to extend their advertising engagement.

Lastly, Moody's notes that the Olympics are slightly credit negative for those state-owned Russian banks that provided loans and/or invested into the equity of Olympics developers, namely Vnesheconombank (VEB, Baa1 stable) and Sberbank (Baa1 stable). Although VEB is the most exposed, Moody's would expect the credit-negative effects to be limited to a slight weakening of the quality of its capital and a possible increase in its funding costs. Moody's sees some similar, albeit very limited, risks for Sberbank, which mainly relate to a large investment project of approximately $2 billion, in which it principally holds an equity stake.

Subscribers can access this report via this link: https://www.moodys.com/research/Sochi-2014-Winter-Olympics-Uncertainty-over-Long-term-Legacy-Overshadows--PBC_163533

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: London +44-20-7772-5456, New York +1-212-553-0376, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at mediarelations@moodys.com or visit our web site at www.moodys.com.

Sergei Grishunin
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service Limited, Russian Branch
7th floor, Four Winds Plaza
21 1st Tverskaya-Yamskaya St.
Moscow 125047
Russia

Victoria Maisuradze
Associate Managing Director
Corporate Finance Group

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Moody's: Uncertainty over long-term legacy overshadows benefits of Sochi Winter Olympics
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