Approximately US$300 million of debt affected
London, 13 May 2011 -- Moody's Investors Service has today downgraded to Ba3/Aa3.ru
from Ba1/Aa1.ru (on review for downgrade) the corporate family
rating (CFR) and probability of default rating (PDR) of PJSC Novorossiysk
Commercial Seaport ("NCSP"). Concurrently, Moody's
has also downgraded the USD300 million worth of 7% loan participation
notes due in 2012 issued by Novorossiysk Port Capital S.A.
(the "Loan Participation Notes") to B1/Loss Given Default
assessment of LGD4 from Ba1/LGD4. In addition, Moody's
has affirmed NCSP's 50% family-wide LGD assessment.
The rating outlook is stable.
RATINGS RATIONALE
Moody's two-notch downgrade of NCSP's issuer rating
follows its completion of the debt-financed acquisition of Primorsk
Trade Port LLC ("PTP") and various changes to NCSP's
share ownership structure, including the change of control of the
company. This rating action concludes the review for downgrade
of NCSP's ratings initiated on 27 September 2010 in response to
the company's announcement that it intended to acquire PTP.
"More particularly, the rating downgrade reflects NCSP's
increased debt burden and the terms of the USD1.95 billion term
loan facility provided by Sberbank to finance the acquisition of PTP (the
"Sberbank Loan")," says Andrew Blease, a
Moody's Senior Vice President and lead analyst for NCSP.
"This is offset somewhat by the larger scale of the NCSP group following
its acquisition of PTP and its increased strategic importance,"
adds Mr Blease. As a rating methodology technicality, Moody's
has also removed the specific one-notch uplift to NCSP's
rating previously incorporated to reflect the likelihood of extraordinary
support being provided by the Government of Russia (Baa1, stable)
in the event that this were ever required by the company, NCSP's
strategic importance now being factored directly into its rating.
However, more positively, NCSP's Ba3 CFR reflects:
(i) the company's position as Russia's largest port and its
successful transition over the past few years to a more modern provider
of bulk cargo and container handling capacity at the Port of Novorossiysk;
(ii) its proven ability to grow cargo volumes and maintain tariff levels
appropriate to maintaining financial health, but which remains somewhat
untested at PTP; (iii) its moderate capital expenditure (capex) plans
and possible investment strategy.
The Ba3 CFR further reflects a PDR of Ba3 and a firm-wide LGD assessment
of 50%. The national scale rating of Aa3.ru maps
to Ba3 on the Moody's Global Rating Scale.
The B1 rating of the Loan Participation Notes and the Loss Given Default
assessment of LGD4 reflect the current and anticipated group debt structure,
which comprises the borrowers and guarantors pertaining to each of NCSP
group's debt instruments.
Although the Russian government still owns 20% of NCSP through
the Federal State Property Management Agency, Moody's notes
that there is an increased likelihood of the shares being sold in line
with previous announcements by the Russian government. Nevertheless,
Moody's notes that following the change of ownership of NCSP,
the company is 50.1% owned by Novoport Holding Limited ("Novoport"),
itself jointly owned by the 100% Russian government owned Transneft
and private interests. Furthermore, on 3 May 2011,
NCSP reported that the Russian government has been awarded "golden
share" rights with veto powers over major changes to the corporate
structure of NCSP. While this emphasises the strategic importance
of NCSP to Russia, Moody's concludes that the probability
of direct extraordinary support being provided is a little less than has
previously been embedded within NCSP's ratings given the possibility
of a future sale of the Government's shares.
Prior to the acquisition of PTP, NCSP steadily reduced its debt
burden by using revenue and cash flow generated from a successful investment
and growth strategy at the Port of Novorossiysk. By the year ending
December 2010, NCSP had debt of USD321 million and cash and cash
equivalents of USD265 million. Consequently, the USD2.15
billion acquisition of PTP, mostly financed by the Sberbank Loan,
has increased NCSP's indebtedness significantly. PTP is Russia's
largest crude oil exporting port, and with the recent addition of
capacity to handle oil products, would be expected to generate good
cash flow over the coming years. The seven-year tenor of
the Sberbank Loan suggests that a fairly rapid pay-down of the
debt is possible. Nevertheless, NCSP is carrying significantly
more debt leverage than previously.
Moody's notes that the Sberbank Loan benefits from a guarantee from
PTP and has a charge over Novoport's shares in NCSP. Furthermore,
as is common with domestic Russian bank loan agreements, a significant
proportion of NCSP's revenues need to be paid into Sberbank bank
accounts as a condition of the loan. Sberbank has power of attorney
over such bank accounts to withdraw funds if NCSP misses a debt payment.
Overall, these features provide a level of protection and priority
of claim that do not pertain to the Loan Participation Notes, hence
the reason for Moody's more significant downgrade of the Loan Participation
Notes to B1.
The stable outlook on the ratings reflects Moody's expectation that:
(i) NCSP will see continued growth in its business; (ii) the company's
capex programmes are appropriate for the expected growth; and (iii)
cash flows generated will enable NCSP to deleverage in terms of debt/EBITDA,
thereby allowing the company to meet its debt maturities on a timely basis
and comply with the financial covenants of the Sberbank loan.
Moody's would consider upgrading NCSP's ratings if it were
to see a material significant reduction in the company's expected
debt levels, which would be evidenced by a sustained reduction in
its debt/EBITDA ratio to below 3.0x, as calculated by Moody's.
Alternatively, the rating agency would consider downgrading NCSP's
ratings if the company were unable to deleverage in terms of debt/EBITDA,
which would be evidenced by this ratio remaining over 4.0x over
the medium term.
NCSP's ratings were assigned by evaluating factors that Moody's
considers relevant to the credit profile of the issuer, such as
the company's (i) business risk and competitive position compared with
others within the industry; (ii) capital structure and financial
risk; (iii) projected performance over the near to intermediate term;
and (iv) management's track record and tolerance for risk. Moody's
compared these attributes against other issuers both within and outside
NCSP's core industry and believes NCSP's ratings are comparable
to those of other issuers with similar credit risk. Other methodologies
used include Loss Given Default for Speculative Grade Issuers in the US,
Canada, and EMEA, published June 2009.
LAST RATING ACTION & PRINCIPAL METHODOLOGY
Following this rating action, NCSP has the following ratings outstanding
with a stable outlook:
CFR (foreign currency) -- Ba3/Aa3.ru
CFR (foreign currency) and PDR -- Ba3
Novorossiysk Port Capital S.A. -- US dollar Loan Participation
Notes -- B1
Novorossiysk Port Capital S.A. -- US dollar Loan Participation
Notes -- LGD4
Moody's National Scale Ratings (NSRs) are intended as relative measures
of creditworthiness among debt issues and issuers within a country,
enabling market participants to better differentiate relative risks.
NSRs differ from Moody's global scale ratings in that they are not globally
comparable to the full universe of Moody's rated entities, but only
with NSRs for other rated debt issues and issuers within the same country.
NSRs are designated by a ".nn" country modifier signifying
the relevant country, as in ".mx" for Mexico.
For further information on Moody's approach to national scale ratings,
please refer to Moody's Rating Implementation Guidance August 2010 "Mapping
Moody's National Scale Ratings to Global Scale Ratings."
PJSC Novorossiysk Commercial Sea Port is company providing stevedoring
services at the Port of Novorossiysk, located on Russia's
Black Sea coast. For the year ending 31 December 2010, the
company had revenues of USD635 million and total assets of USD1.383
billion.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service information, and confidential and proprietary Moody's
Analytics information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
The rating has been disclosed to the rated entity or its designated agents
and issued with no amendment resulting from that disclosure.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its related third parties within the
three years preceding the Credit Rating Action. Please see the
ratings disclosure page www.moodys.com/disclosures on our
website for further information.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
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used in determining ratings, further information on the meaning
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London
Andrew Blease
Senior Vice President
Infrastructure Finance
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
London
Monica Merli
MD - Infrastructure Finance
Infrastructure Finance
Moody's Investors Service Ltd.
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SUBSCRIBERS: 44 20 7772 5454
Moody's Investors Service Ltd.
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Moody's downgrades Novorossiysk Commercial Sea Port to Ba3 from Ba1; stable outlook (Russia)
