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Global Credit Research - 15 Jun 2010
London, 15 June 2010 -- Moody's Investors Service has today downgraded the issuer rating
of JSC RusHydro ("RusHydro") to Ba1 from Baa3. Concurrently,
Moody's has assigned a Ba1 Corporate Family Rating (CFR) to RusHydro.
The outlook is stable. In conjunction with this, Moody's
Interfax, which is majority owned by Moody's, downgraded
RusHydro's National Scale Rating (NSR) to Aa1.ru from Aaa.ru.
The rating actions conclude the review for possible downgrade that was
initiated on 5 October 2009 due to uncertainties surrounding the impact
on the creditworthiness of the company from the August 2009 accident at
Sayano-Shushenskaya Hydro Power Plant (SS HPP), RusHydro's
The downgrade reflects Moody's view that RusHydro's creditworthiness
is now more commensurate with a high non-investment grade rating
of Ba1 than a low investment grade of Baa3. Although the downgrade
follows the review initiated in connection with the SS HPP accident,
Moody's notes that the company seems to be in a position to limit
the negative consequences of the accident. However, Moody's
decided to downgrade RusHydro's rating to Ba1, to take into
account the challenges facing the company in the evolving regulatory and
operating environment, of which the SS HPP accident is a symptom.
Moody's considers that the visibility of the evolution of the company's
credit profile over the next 12-18 months is lower than what it
would expect from an investment-grade-rated company.
The rating agency acknowledges that with support from the government,
RusHydro has managed to contain the impact of the SS HPP shutdown on its
2009 financial results and is implementing the restoration of SS HPP in
line with an ambitious plan, although the process is in its early
stages and will take a few years. The restoration investments are
funded as scheduled, with an order for new equipment placed with
manufacturers, two of SS HPP's ten hydro-units returned
into operation and the construction of the shore spill-over at
SS HPP completed. So far, the accident-related burden
has been reasonably accommodated under the company's financial profile,
which as of end-2009, is strong for the current rating.
However, in Moody's view, the accident added pressure
and uncertainties, heightened the financial and execution risks
associated with large and urgent investment needs and limited the company's
flexibility in the context of the challenges associated with the evolving
Russian electric utility sector. In particular, the challenges
include: (i) the evolving regulatory and market framework;
(ii) the developing configuration of the sector, with the consolidation
process and re-distribution of influence among state-controlled
market players under way; and (iii) the uncertainties regarding the
state's involvement and support for the sector and specific companies
in the new more market-driven environment. Moody's
notes the changes in RusHydro's management team following the accident
at SS HPP. It also notes the delayed finalisation of a mid-term
business plan at a time when the company is pursuing acquisitions of power
supply businesses and may pursue a more acquisitive strategy going forward,
if it considers acquisitions of stakes in other hydropower assets that
may become available. In this market environment, it is unclear
whether RusHydro retains the ability to supplement internal cash flow
generation with proceeds from disposals of potentially valuable financial
assets in support of its investment programme.
The outlook on the rating is stable, factoring in the headroom in
the company's financial profile at the end of 2009 within the current
rating category and acceptable liquidity. RusHydro's rating
remains underpinned by its strong business fundamentals as Russia's
largest low-cost hydro generator, which is well positioned
to benefit from the Russian wholesale power market liberalisation and
should be able to absorb the risks of market fluctuations. Its
rating is constrained by its large investment needs, the limited
visibility on the company's and market future evolution and the
broader risks of Russia's business environment. Strong state
support is still factored into the rating -- currently equivalent
to a two-notch uplift to Moody's assessment of the company's
standalone credit quality -- as RusHydro is controlled by the state
and considered a Government-Related Issuer (GRI) by Moody's.
The previous rating action on RusHydro was implemented on 5 October 2009,
when Moody's placed RusHydro's Baa3 on review for possible downgrade
due to the uncertainties surrounding the impact on the creditworthiness
of the company from the August 2009 accident at SS HPP.
The principal methodology used in rating RusHydro was Moody's "The Application
of Joint Default Analysis to Government Related Issuers," April
2005, which can be found at moodys.com in the Rating Methodologies
sub-directory under the Research & Ratings tab. Other
methodologies and factors that may have been considered in the process
of rating this issuer can also be found in the Rating Methodologies sub-directory
on Moody's website.
Headquartered in Moscow, RusHydro is Russia's largest generator
of hydro electricity. RusHydro is controlled by the Russian government,
whose stake in the company is approximately 60%. In 2009,
the company's contribution to Russia's total installed capacity and electricity
output was around 12%, if the SS HPP capacity was counted,
and 9%, respectively. In 2009, RusHydro's IFRS
revenues were RUB115.6 billion (approximately USD3.7 billion).
NATIONAL SCALE RATINGS
Moody's Interfax Rating Agency'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 in Russia are designated by the ".ru"
suffix. NSRs differ from global scale ratings, as assigned
by Moody's Investors Service, in that they are not globally comparable
to the full universe of Moody's rated entities, but only with other
rated entities within the same country.
ABOUT MOODY'S AND MOODY'S INTERFAX
Moody's Interfax Rating Agency (MIRA) specialises in credit risk analysis
in Russia. MIRA is controlled by Moody's Investors Service,
a leading provider of credit ratings, research and analysis covering
debt instruments and securities in the global capital markets.
Moody's Investors Service is a subsidiary of Moody's Corporation (NYSE:
MCO). Further information is available at www.moodys.com.
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Vice President - Senior Analyst
Moody's Eastern Europe LLC
Telephone: +7 495 228 6060
Facsimile: +7 495 228 6091
Moody's downgrades RusHydro to Ba1; outlook stable
No Related Data.
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