The ratings of certain other Russian utilities are affirmed
London, 03 April 2014 -- Moody's Investors Service has today taken multiple rating actions
on Russian utility companies in Russia. These rating actions follow
Moody's placement of Russia's Baa1 government bond rating
on review for downgrade on 28 March 2014. For additional information,
please refer to the related announcement: https://www.moodys.com/research/Moodys-places-Russias-Baa1-government-bond-rating-on-review-for--PR_294200.
In particular, Moody's has placed the ratings of the following
issuers and debt issues on review for downgrade:
- OAO AK Transneft: Transneft's Baa1 issuer rating
and the Baa1 senior unsecured rating of the outstanding $1.05
billion loan participation notes issued by TransCapitalInvest Limited,
a special purpose vehicle (SPV) of Transneft.
- Atomenergoprom, JSC: Atomenergoprom's Baa2
issuer rating.
- FGC UES, JSC: FGC UES's Baa3 issuer rating,
the (P)Baa3 senior unsecured rating of the RUB100 billion loan participation
note programme, and the Baa3 rating of the first series of RUB17.5
billion of notes issued thereunder by Federal Grid Finance Limited,
an SPV of FGC UES.
Moody's also affirmed the corporate family ratings (CFR) and probability
of default ratings (PDR) of the following companies and the ratings of
the following debt issues; the outlook on these ratings remains stable:
- RusHydro, JSC: RusHydro's Ba1 CFR, Ba1-PD
PDR and the Ba1 senior unsecured rating of loan participation notes of
RUB20 billion.
- Inter RAO, JSC, Russian Grids, JSC: Inter
RAO's and Russian Grids' Ba1 CFR and Ba1-PD PDR.
- IDGC of Center and Volga Region, JSC, IDGC of Urals,
JSC, IDGC of Volga, JSC, Lenenergo, JSC,
MOESK, OJSC: the Ba2 CFR and Ba2-PD PDR of each of
the companies.
RATINGS RATIONALE
Today's actions cover Russian utility companies which are directly
and/or indirectly controlled by the Russian government. The companies'
ratings, whether they fall under Moody's methodology for government-related
issuers (Transneft, Atomenergoprom, FGC UES, Russian
Grids, Inter RAO, RusHydro), or other methodologies
(IDGC of Center and Volga Region, IDGC of Urals, IDGC of Volga,
Lenenergo, MOESK), benefit from an uplift to the companies'
standalone credit quality driven by the probability of state support.
Moody's decision to review the ratings of Transneft, Atomenergoprom
and FGC UES for downgrade primarily reflects (1) the companies'
strong linkages with the Russian government; (2) the focus of their
business in Russia; and (3) the ratings' high sensitivity to
the factors that drive the probability of government support. The
value of the uplift for government support will be reconsidered in light
of the review for downgrade of the Russian sovereign rating.
The affirmation of the ratings and outlooks for Russian Grids and its
rated distribution grid subsidiaries (IDGC of Center and Volga Region,
IDGC of Urals, IDGC of Volga, Lenenergo and MOESK),
as well as for Inter RAO and RusHydro reflects the robustness of the support
assumptions embedded within their ratings, and the fact that a substantial
downward transition in the rating of the Russian government would be required
before a downwards adjustment in ratings was justified.
WHAT COULD MOVE THE RATING DOWN/UP
--- TRANSNEFT, ATOMENERGOPROM, FGC UES
Upward pressure on the companies' ratings is unlikely at present,
given the current review for downgrade. Moody's could confirm
the companies' ratings if it were to confirm Russia's government
bond rating at the current level, provided there is no material
deterioration in company-specific factors, including operating
and financial performance and liquidity.
Moody's would downgrade some or all of Transneft's,
Atomenergoprom's and FGC UES's ratings if it were to (1) downgrade
the rating of the Russian government; and/or (2) revise downwards
its assessment of the probability of the government providing extraordinary
support to the companies in the event of financial distress. At
this point, despite Transneft's strong standalone credit quality,
Moody's expects that Transneft's rating is unlikely to be
higher than that of the sovereign at the end of the rating review.
The final rating of FGC UES will depend on the result of the review of
the government rating. A one notch downgrade of the government
rating, together with maintenance of robust support assumptions
would likely result in a confirmation of the rating.
--- RUSSIAN GRIDS AND ITS DISTRIBUTION GRID SUBSIDIARIES
(IDGC OF CENTER AND VOLGA REGION, IDGC OF URALS, IDGC OF VOLGA,
LENENERGO, MOESK), INTER RAO, RUSHYDRO
Upward pressure on all companies' ratings is unlikely at present,
given the review of the Russian sovereign rating for downgrade.
Downward pressure on the ratings could develop if there were a substantial
downward transition in the rating of the Russian government. In
addition, downward pressure on individual companies would develop
for the following reasons:
Downward pressure on the ratings of Russian Grids and its distribution
grid subsidiaries could result from (1) signs of weakening support from
the government; (2) a negative shift in the developing regulatory
regime without compensatory measures by the state leading to significantly
deteriorating margins; (3) pressured liquidity; (4) a failure
of the companies to manage their investment programmes in line with the
tariff regulation and contain a deterioration of their financial profiles
within the following Moody's guidance, with FFO interest coverage
and FFO/net debt falling materially and persistently below 3.0x
and 20%, respectively, for Russian Grids; below
3.5x and 25% for FGC UES; below 3.0x and mid-teens
for Lenenergo and MOESK; below 3.5x and 20% for IDGC
of Center and Volga Region, IDGC of Urals, IDGC of Volga.
Negative pressure on Inter RAO's and RusHydro's ratings would also
result from Moody's assessment of a material reduction in the probability
of state support. The ratings of both companies could also be negatively
affected if there were a significant negative shift in the evolving regulatory
and market framework and Moody's believed that the companies would fail
to limit a deterioration of its financial profile, reflected in
a debt/EBITDA ratio above 3x, FFO interest coverage below 5.0x
and RCF/debt below 30% materially and on a sustainable basis.
The companies' inability to maintain adequate liquidity could also
pressure the ratings.
PRINCIPAL METHODOLOGIES
The principal methodologies used in rating Russian Grids, JSC,
OAO AK Transneft and FGC UES, JSC were Regulated Electric and Gas
Networks published in August 2009, and the Government-Related
Issuers: Methodology Update published in July 2010. Please
see the Credit Policy page on www.moodys.com for a copy
of these methodologies.
The principal methodology used in rating IDGC of Center and Volga Region,
JSC, IDGC of Urals, JSC, IDGC of Volga, JSC,
Lenenergo, JSC and MOESK, OJSC was Regulated Electric and
Gas Networks published in August 2009. Please see the Credit Policy
page on www.moodys.com for a copy of this methodology.
The principal methodologies used in rating Atomenergoprom, JSC and
Inter RAO, JSC were Unregulated Utilities and Power Companies published
in August 2009, and the Government-Related Issuers:
Methodology Update published in July 2010. Please see the Credit
Policy page on www.moodys.com for a copy of these methodologies.
The principal methodologies used in rating RusHydro, JSC were Unregulated
Utilities and Power Companies published in August 2009, Loss Given
Default for Speculative-Grade Non-Financial Companies in
the U.S., Canada and EMEA published in June 2009 and
the Government-Related Issuers: Methodology Update published
in July 2010. Please see the Credit Policy page on www.moodys.com
for a copy of these methodologies.
Fully controlled by the Russian government (the latter owns 100%
of its voting shares), Transneft is the de-facto monopoly
oil pipeline business in Russia, with 2012 reported sales of around
RUB577.6 billion, or $18.6 billion (net of
revenues from crude oil supplies to China, which are mirrored by
oil purchase costs).
Headquartered in the city of Moscow, Russia, Atomenergoprom
and its subsidiaries represent the civil Russian nuclear industry,
which covers the whole nuclear cycle from uranium mining and enrichment
to nuclear fuel production, production of electricity at nuclear
power plants and construction of nuclear power units/plants both in Russia
and abroad. Atomenergoprom's consolidated revenue was RUB396.4
billion (around $12.8 billion) in 2012. The company
is 100% owned by the Russian government through the State Atomic
Energy Corporation Rosatom.
Headquartered in Moscow, Russia, FGC UES is the monopoly electricity
transmission system operator in the Russian Federation. The company's
revenues amounted to RUB140.3 billion (around $4.5
billion) in 2012 (other operating income of RUB3.5 billion,
primarily from non-core activities, is not included).
FGC is 80.12% owned by Russian Grids.
RusHydro is Russia's largest and a world major hydropower business,
accounting for around half of hydropower output in Russia, majority
owned (66.84% at end-2013) by the Russian government.
In 2011, following the acquisition of RAO Energy System of East
(RAO ES of East), the Far Eastern integrated electric utility business,
RusHydro acquired exposure to thermal power generation. RusHydro's
IFRS revenue was RUB313.6 billion (approximately $9.8
billion) in 2013.
Inter RAO is a Russian major electric utility engaged in thermal electricity
generation and retail electricity sales in Russia, cross-border
electricity trading and electric utility operations abroad. Inter
RAO's IFRS revenue was RUB662.3 billion (approximately $20.7
billion) in 2013. Inter RAO is controlled by the Russian government,
which owns 56.23% of the company through state-controlled
entities.
Headquartered in the city of Moscow, Russian Grids is the holding
company for FGC UES and 15 distribution grid subsidiaries. The
Russian government owns a 85.31% stake in Russian Grids.
Russian Grids' operating grid subsidiaries are regulated natural monopolies,
whose electricity transportation revenues accounted for around 80.8%
of the group's 6M 2013 consolidated revenue of RUB348.8 billion
($11.4 billion), with FGC UES assumed to be consolidated
from the beginning of 2013.
Headquartered in the city of Nizhniy Novgorod, Russia, IDGC
of Center and Volga Region is an interregional electricity distribution
grid business, focused on nine regions in the European part of Russia.
IDGC of Center and Volga Region's 2012 total revenues were RUB58.4
billion (around $1.9 billion). Russian Grids holds
50.4% of the company's voting shares.
Headquartered in the city of Yekaterinburg, Russia, IDGC of
Urals is an interregional electricity distribution grid business,
focused on three regions in the Urals: Yekaterinburg, Chelyabinsk
and Perm. The company's 2012 total revenues were RUB59.4
billion ($1.9 billion). Russian Grids holds 51.52%
of the company's voting shares.
Headquartered in the city of Saratov, Russia, IDGC of Volga
is an interregional electricity distribution company, focused on
seven regions in the European part of Russia. IDGC of Volga's 2012
total revenues were RUB45.9 billion ($1.5 billion).
Russian Grids holds 67.63% of the company's voting shares.
Headquartered in the city of St. Petersburg, Lenenergo is
one of Russia's major regional electricity distribution grid companies,
focused on the St. Petersburg region. Lenenergo's 2012 total
revenues were RUB38.1 billion (before normal technological losses),
or $1.2 billion. The largest shareholder of Lenenergo
is Russian Grids, which directly and indirectly holds 60.56%
of Lenenergo's voting shares. A blocking stake of 26.57%
of voting shares is owned by the government of the city of St.
Petersburg.
Headquartered in the city of Moscow, MOESK is Russia's largest regional
power distribution grid company servicing the Moscow region. MOESK's
2012 total revenues amounted to RUB125.3 billion ($4.0
billion). The largest shareholders of MOESK are the state-controlled
Russian Grids (50.9%); other major shareholders are
entities associated with OJSC Gazprom; and the Moscow city government.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain 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 certain 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 certain 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.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this rating action, and
whose ratings may change as a result of this rating action, the
associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
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.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Ekaterina Botvinova
Vice President - Senior Analyst
Infrastructure 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
Monica Merli
MD - Infrastructure Finance
Infrastructure Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
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Moody's announces actions on GRIs: Transneft, Atomenergoprom and FGC UES on review for downgrade
