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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
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Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service Limited, Russian Branch
7th floor, Four Winds Plaza
21 1st Tverskaya-Yamskaya St.
Associate Managing Director
Corporate Finance Group
Moody's: Uncertainty over long-term legacy overshadows benefits of Sochi Winter Olympics
Moody's Investors Service Ltd.
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