London, 27 April 2016 -- Moody's Investors Service (Moody's) has today confirmed the ratings
of OAO AK Transneft (Transneft), Atomenergoprom, JSC (Atomenergoprom),
FGC UES, JSC (FGC UES) at Ba1 with the negative outlook.
Concurrently, the agency has confirmed the ratings of Inter RAO
PJSC (Inter RAO), RusHydro PJSC (RusHydro), ROSSETI,
PJSC (ROSSETI) and subsidiaries of ROSSETI (MOESK, PJSC, Lenenergo,
PJSC, IDGC of Center and Volga Region, PJSC, IDGC of
Urals, JSC, IDGC of Volga, PJSC) at Ba2 with a stable
outlook, and of Novorossiysk Commercial Sea Port, PJSC (NCSP)
at Ba3 with a stable outlook.
At the same time, Moody's has raised Inter RAO's baseline
credit assessment (BCA) to ba2 from ba3, whilst continuing to factor
in the company's Ba2 rating strong probability of state support
in the event of financial distress, as well as high default dependence
between the company and the Russian government.
These actions follow Moody's confirmation of Russia's government bond
rating at Ba1 with a negative outlook on 22 April 2016 and conclude the
review for downgrade initiated by Moody's on 9 March 2016. For
additional information, please refer to the related announcement:
http://www.moodys.com/viewresearchdoc.aspx?docid=PR_347453.
A full list of affected ratings is provided towards the end of this press
release.
RATINGS RATIONALE
- CONFIRMATIONS
The confirmation of the ratings reflects Moody's opinion that (1)
the credit risks for the 12 Russian utilities and infrastructure issuers
affected by today's rating action remains manageable; and (2)
the assumption of extraordinary state support embedded within the companies'
ratings remains in place given that Russian government's credit strength
remains sufficient.
The key drivers for the confirmation are (1) the Russian economy's
resilience to the oil price shocks observed early in 2016 owing to an
effective blend of macro policy responses; (2) the fiscal adjustment
performed by the Russian authorities appears sufficient to reduce the
2016-18 deficits to a level that can be financed in the domestic
capital markets and fiscal reserve drawdowns; and (3) the individual
companies' operating and financial metrics are commensurate with
Moody's requirements for companies' current ratings;
and (4) the companies will maintain good liquidity positions given the
companies' good access to Russian state-owned banks and the
Russian rouble-bond market.
However, Moody's expects that the operating environment for
these companies will remain challenging. This is the result of
continuing weak domestic demand resulting from Russia's structurally weak
growth potential, as well as the limited availability of favorably
priced investment capital. Moreover, a set of policies that
would address the economy's low growth potential have yet to emerge.
- RAISING OF INTER RAO'S BCA
The raise of Inter RAO's BCA reflects strong credit metrics of the
company in financial year 2015 and the agency's expectations that
the company's credit profile will continue strengthening in the
next 12-24 months. This is underpinned by ongoing commissioning
of new capacities built under capacity supply agreements (CSA) with the
Russian state envisaging a stream of payments over the next 10 years if
Inter RAO's plants are available that would enable the company to
earn a predictable return on its recent investments. This new capacity
will increment cash flow generation and enhance its stability in future
years. The raise of BCA is also underpinned by a reduction of capex
starting from 2017 to maintenance levels following the completion of the
investment cycle. This moderation in capex will reduce the need
of new debt. In the next 12-24 months Moody's expects
Inter RAO to generate positive free cash flow, its FFO interest
coverage ratio to stay above 7x and its FFO/debt to increase above 70%.
- OUTLOOKS
The negative outlook on Transneft's, Atomenergoprom's and
FGC UES's ratings mirrors the negative outlook of Russia's
sovereign rating and reflects the fact that these companies' ratings
are positioned at the same level as the sovereign rating and the Russian
foreign currency bond ceiling. Any downgrade of the Russian sovereign
rating and/or foreign currency bond ceiling would result in a downgrade
of these companies' ratings.
The stable outlook on the ratings of RusHydro, Inter RAO,
NCSP, ROSSETI and its subsidiaries reflects Moody's expectation
that (1) each company's specific credit factors, including their
operating and financial performance, market positions and liquidity,
will remain commensurate with their ratings on a sustainable basis;
and (2) the probability of the Russian government providing extraordinary
support to the companies will remain unchanged even in a scenario where
Russian sovereign rating is downgraded by one notch.
WHAT COULD CHANGE THE RATINGS UP/DOWN
There is a low probability of a positive pressure on all the ratings at
present given the negative outlook on the sovereign rating of Russia and
companies exposure to the weak domestic macroeconomic environment.
Moody's could change the outlook on the ratings of Transneft, Atomenergoprom
and FGC UES to stable if it were to change the outlook on Russia's government
bond rating to stable, provided there was no material deterioration
in company-specific factors, including rating positioning,
operating and financial performance, liquidity, and the rating
agency's assessment of the probability of the Russian government
providing extraordinary support to the issuers in the event of financial
distress.
Conversely, negative pressure would be exerted on some or all the
ratings if Moody's were to (1) downgrade Russia's sovereign rating;
and/or (2) the rating agency were to revised down the probability of the
Russian government providing extraordinary support to issuers in the event
of financial distress.
In addition, downward pressure on individual companies' ratings
could develop for the following reasons:
The rating agency could downgrade Transneft's ratings if the challenging
operating environment in Russia were to lead to a significantly weaker
financial profile and increasing constraints on liquidity.
Negative pressure on Atomenergoprom's ratings could develop if the company's
financial profile deteriorates, reflected in a debt/EBITDA ratio
above 3x, Funds From Operations (FFO) interest coverage below 5.0x
and Retained Cash Flow (RCF)/debt below 25% materially on a continued
basis. In addition, the lack of adequate liquidity could
put pressure on the company's rating, and downward pressure could
develop if the company's key subsidiaries see their share of external
debt materially exceeding 20% of total debt on a permanent basis.
Negative pressure on FGC's rating could result from (1) a sustainable
negative shift in the regulatory regime and significantly deteriorating
margins; (2) company failure to manage its investment programme in
line with the tariff regulation and contain a deterioration of its financial
profile, with FFO interest coverage and FFO/net debt falling materially
and persistently below 3.5x and 25%, respectively;
and (3) pressured liquidity.
Downward pressure on RusHydro's ratings could rise if there is a negative
shift in the regulatory and market framework, or if the company
fails to limit financial profile deterioration, reflected in a debt-to-EBITDA
ratio significantly above 3x and funds from operations interest coverage
significantly below 5x and on a sustained basis. The company's
inability to maintain adequate liquidity could also put pressure on the
rating.
Downward pressure on Inter RAO's BCA could develop if the company is not
able to strengthen its cash flow generation as planned and/or the company
engages in debt-funded acquisitions or more ambitious capex programme
resulting in an increase in leverage (measured as Debt/EBITDA) above 2.0x.
Downward pressure on ROSSETI's rating could result from (1) a negative
shift in regulatory regime without compensatory measures by the state
leading to significantly deteriorating EBITA margin to below 10%;
(2) pressured liquidity; and/or (3) a failure to manage its investment
programme in line with the tariff regulation and contain deterioration
of its financial profiles, with FFO interest coverage and FFO/net
debt falling materially and persistently below 3.0x and 20%.
NCSP's rating is likely to be downgraded if (1) there is an increasing
likelihood of transformational changes to NCSP's ownership and business
structure with uncertain or negative consequences for NCSP's credit quality;
(2) NCSP's financial profile were to deteriorate, with FFO interest
coverage and the ratio of FFO to debt trending towards below 3x and 15%,
respectively; or if (3) NCSP's liquidity were to deteriorate.
Downward pressure on the ratings of MOESK's, Lenenergo's,
IDGC of Center and Volga Region's, IDGC of Urals', IDGC of
Volga's could result from (1) weakening support from state-related
shareholder ROSSETI; (2) a negative shift in the regulatory and market
framework; and (3) companies' failure to manage their investment
programmes in line with the tariff decisions resulting in a deterioration
of their financial profile, margins and liquidity. Downgrade
pressure on MOESK and Lenenergo's rating could also result from deterioration
of their financial profiles, with FFO interest coverage falling
materially and persistently below 3.5x and FFO/net debt falling
below 20%.
Downward pressure on the ratings of IDGC of Center and Volga Region,
IDGC of Volga and IDGC of Urals could develop if their financial profiles
weaken, with total FFO interest coverage falling materially and
persistently below 4.0x and FFO/net debt below the mid-twenties
in percentage terms. Inability to timely address liquidity needs
could also negatively influence the rating.
LIST OF AFFECTED RATINGS
Confirmations:
Atomenergoprom, JSC
.... Probability of Default Rating,
Confirmed at Ba1-PD
.... Corporate Family Rating, Confirmed
at Ba1
Federal Grid Finance Limited
....Senior Unsecured Medium-Term Note
Program, Confirmed at (P)Ba1
....Senior Unsecured Regular Bond/Debenture,
Confirmed at Ba1
FGC UES, JSC
.... Probability of Default Rating,
Confirmed at Ba1-PD
.... Corporate Family Rating, Confirmed
at Ba1
IDGC of Center and Volga Region, PJSC
.... Probability of Default Rating,
Confirmed at Ba2-PD
.... Corporate Family Rating, Confirmed
at Ba2
IDGC of Urals, JSC
.... Probability of Default Rating,
Confirmed at Ba2-PD
.... Corporate Family Rating, Confirmed
at Ba2
IDGC of Volga, PJSC
.... Probability of Default Rating,
Confirmed at Ba2-PD
.... Corporate Family Rating, Confirmed
at Ba2
Inter RAO, PJSC
.... Probability of Default Rating,
Confirmed at Ba2-PD
.... Corporate Family Rating, Confirmed
at Ba2
Lenenergo, PJSC
.... Probability of Default Rating,
Confirmed at Ba2-PD
.... Corporate Family Rating, Confirmed
at Ba2
MOESK, PJSC
.... Probability of Default Rating,
Confirmed at Ba2-PD
.... Corporate Family Rating, Confirmed
at Ba2
Novorossiysk Commercial Sea Port, PJSC
.... Probability of Default Rating,
Confirmed at Ba3-PD
.... Corporate Family Rating, Confirmed
at Ba3
OAO AK Transneft
.... Probability of Default Rating,
Confirmed at Ba1-PD
.... Corporate Family Rating, Confirmed
at Ba1
ROSSETI, PJSC
.... Probability of Default Rating,
Confirmed at Ba2-PD
.... Corporate Family Rating, Confirmed
at Ba2
RusHydro, PJSC
.... Probability of Default Rating,
Confirmed at Ba2-PD
.... Corporate Family Rating, Confirmed
at Ba2
TransCapitalInvest Limited
....Senior Unsecured Regular Bond/Debenture,
Confirmed at Ba1
Outlook Actions:
Atomenergoprom, JSC
Outlook: Changed To Negative From Rating Under Review
Federal Grid Finance Limited
Outlook: Changed To Negative From Rating Under Review
FGC UES, JSC
Outlook: Changed To Negative From Rating Under Review
IDGC of Center and Volga Region, PJSC
Outlook: Changed To Stable From Rating Under Review
IDGC of Urals, JSC
Outlook: Changed To Stable From Rating Under Review
IDGC of Volga, PJSC
Outlook: Changed To Stable From Rating Under Review
Inter RAO, PJSC
Outlook: Changed To Stable From Rating Under Review
Lenenergo, PJSC
Outlook: Changed To Stable From Rating Under Review
MOESK, PJSC
Outlook: Changed To Stable From Rating Under Review
Novorossiysk Commercial Sea Port, PJSC
Outlook: Changed To Stable From Rating Under Review
OAO AK Transneft
Outlook: Changed To Negative From Rating Under Review
ROSSETI, PJSC
Outlook: Changed To Stable From Rating Under Review
RusHydro, PJSC
Outlook: Changed To Stable From Rating Under Review
TransCapitalInvest Limited
Outlook: Changed To Negative From Rating Under Review
The principal methodologies used in rating OAO AK Transneft; ROSSETI,
PJSC; FGC UES JSC; Transcapitalinvest Limited and Federal Grid
Finance Limited were Regulated Electric and Gas Networks published in
November 2014, and Government-Related Issuers published in
October 2014.
The principal methodology used in rating MOESK, PJSC; Lenenergo,
PJSC; IDGC of Urals, JSC; IDGC of Volga, PJSC;
IDGC of Center and Volga Region, PJSC was Regulated Electric and
Gas Networks published in November 2014.
The principal methodologies used in rating Atomenergoprom, JSC;
RusHydro, PJSC; and Inter RAO, PJSC were Unregulated
Utilities and Unregulated Power Companies published in October 2014,
and Government-Related Issuers published in October 2014.
The principal methodologies used in rating Novorossiysk Commercial Sea
Port, PJSC were Privately Managed Port Companies published in May
2013, and Government-Related Issuers published in October
2014.
Please see the Ratings Methodologies page on www.moodys.com
for a copy of these methodologies.
Fully controlled by the Russian government (the government owns 100%
of its voting shares), OAO AK Transneft (Transneft) is the largest
crude oil transportation company in the world. 2015 reported sales
reached around RUB674.2 billion, or $11 billion (net
of revenues from crude oil supplies to China, which are mirrored
by the oil purchase costs, under 2009-dated $10 billion,
20-year loan-for-oil deal).
JSC Atomenergoprom (Atomenergoprom) is the holding company for numerous
subsidiaries which represent the civil Russian nuclear industry.
As of 31 December 2015, the group generated revenue of RUB657.1
billion (around $10.7 billion). 100% of Atomenergoprom's
voting shares are ultimately owned by the Russian government through the
State Atomic Energy Corporation "Rosatom" (Rosatom) (94,349%
of the issued shares of all categories) and the Ministry of Finance of
the Russian Federation (5,651% of the issued shares of all
categories)
PJSC RusHydro (RusHydro) is Russia's largest and a world major hydropower
business, accounting for around a half of hydropower output in Russia,
majority (66.84% as of 31 December 2015) owned by the Russian
government. As of end-2015, RusHydro generates revenue
of RUB361.8 billion (around $5.9 billion).
PJSC Inter RAO (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 generated revenue of RUB805.3 billion
($13.1 billion) in 2015. Inter RAO is controlled
by the Russian government through several state-controlled entities
(own over 50.00% of the company as of 31 December 2015).
JSC Federal Grid Company of Unified Energy System (FGC UES, or FGC)
is the monopoly electricity transmission system operator in the Russian
Federation. The company's revenues, amounted to RUB187 billion
(around $3.1 billion) in 2015 (other operating income of
RUB4 billion, primarily from non-core activities, is
not included). FGC is 80.13% owned by state-owned
PJSC ROSSETI.
PJSC ROSSETI (ROSSETI) is the holding company for the national transmission
grid (FGC UES) and 15 distribution grid subsidiaries (including MOESK,
PJSC; Lenenergo, PJSC; IDGC of Urals, JSC;
IDGC of Volga, PJSC; IDGC of Center and Volga Region,
PJSC). As of 31 December 2015 Russian government owns a 86.32%
of ordinary shares and 7.01% of preferred shares in ROSSETI.
As of December 31, 2015 the company generated revenue of around
RUB766.8 billion (around $12.5 billion).
PJSC Novorossiysk Commercial Sea Port (NCSP) and its subsidiaries represent
Russia's largest stevedore. NCSP is 50.1%-owned
by Novoport Holding Ltd. The Russian government owns a 20%
stake in NCSP and the "golden share". In 2015, NCSP generated
revenue of $877.2 million.
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 credit rating action on the support provider and in relation to
each particular credit 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 credit rating action,
and whose ratings may change as a result of this credit 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.
Sergei Grishunin
Asst Vice President - Analyst
Infrastructure Finance Group
Moody's Investors Service Limited, Russian Branch
7th floor, Four Winds Plaza
21 1st Tverskaya-Yamskaya St.
Moscow 125047
Russia
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Monica Merli
MD - Infrastructure Finance
Infrastructure Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's concludes ratings reviews on 12 Russian utilities and infrastructure GRI and subsidiaries
