Follows Russia's sovereign rating upgrade to Baa3 from Ba1 and country ceilings for foreign currency debt rising to Baa2/P-2 from Baa3/P-3
London, 12 February 2019 -- Moody's Investors Service ("Moody's") has today
upgraded long-term issuer ratings of 12 Russian non-financial
corporates to Baa2 from Baa3. The outlooks on all these ratings
have been changed to stable from positive. Baseline credit assessments
(BCAs) for all of the government-related issuers (GRIs) in this
cohort were upgraded to baa2 from baa3, while their respective support
and dependence assumptions remain unchanged.
Moody's has also assigned Baa3 long-term issuer ratings to
four Russian non-financial corporates in the utilities and infrastructure
sector, while concurrently withdrawing their Ba1 corporate family
ratings (CFRs) and Ba1-PD probability of default ratings (PDRs).
The outlooks on these ratings have been changed to stable from positive.
For these issuers, all of which are GRIs, their ba1 BCAs and
respective support and dependence assumptions remain unchanged.
Today's actions follow a sovereign rating action on the government
of Russia which took place on 8 February 2019, during which Moody's
upgraded Russia's long-term issuer and senior unsecured debt ratings
to Baa3 from Ba1 and changed the outlook on these ratings to stable from
positive. The upgrade of Russia's ratings reflects the positive
impact of policies enacted in recent years to strengthen Russia's
already robust public finance and external metrics and reduce the country's
vulnerability to external shocks including fresh sanctions.
In a related decision, Moody's raised Russia's country ceilings
for foreign-currency debt to Baa2/P-2 from Baa3/P-3.
Moody's also raised the country ceilings for local currency-denominated
debt and deposits to Baa1 from Baa2. A country ceiling generally
indicates the highest rating level that any issuer domiciled in that country
can attain for instruments of that type and currency denomination.
For additional information, please refer to the related announcement
https://www.moodys.com/research/--PR_394165.
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_202606
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and identifies each affected issuer.
RATINGS RATIONALE
Out of the affected corporates, nine companies in the oil and gas,
steel and mining sectors (for which long-term issuer ratings were
upgraded to Baa2 from Baa3) exhibit particularly strong credit metrics
with a substantial share of foreign-currency revenue and strong
liquidity profiles, which gives them a degree of resilience at times
of sovereign stress. All of these entities have robust business
models, have low costs for their sectors and are visible players
both in the domestic market and outside, factors that merited a
one-notch rating differentiation relative to Russia's Baa3 long-term
issuer and senior unsecured debt rating and factoring in the country ceiling
for foreign-currency debt being raised to Baa2/P-2 from
Baa3/P-3. Foreign-currency revenue stream,
combined with cost bases and capital spending that are largely in roubles,
provides the strongest Russian companies in these sectors with a degree
of insulation from local market stress and helps cushion the effects of
foreign-currency debt revaluations on their leverage metrics.
The ratings of four state-controlled Russian power and utilities,
and infrastructure companies were upgraded in line with the sovereign
bond rating to Baa3 with a stable outlook, reflecting the degree
of interlinkage with the sovereign and their differing credit profiles,
which remain fairly strong. The credit profiles of these companies
are more sensitive to the domestic macroeconomic environment. These
companies operate in the same economic and financial environment as exporters,
but they lack revenue diversification and are therefore more vulnerable
to macroeconomic stresses.
Despite the higher sensitivity to the domestic macroeconomic environment
compared with exporters, as well as generally closer credit linkages
with the government through the ownership, the regulated tariff
regime and funding of strategic projects (for some of them), some
of Russian infrastructure companies will likely demonstrate a degree of
resilience to the domestic macroeconomic and financial disruption in the
event of sovereign distress due to their fundamentally strong credit profiles.
Russian Railways Joint Stock Company, its subsidiary Federal Passenger
Company OJSC, and Transneft, PJSC have fundamentally strong
credit quality due to their resilient business models and market positioning
including monopoly status, diversified customer bases (albeit predominantly
domestic), as well as moderate levels of debt and strong liquidity
profiles - factors that merited a one-notch rating differentiation
relative to Russia's sovereign rating factoring in the country ceiling
for foreign-currency debt being raised to Baa2/P-2 from
Baa3/P-3. As a result, the long-term issuer
ratings of these companies were upgraded to Baa2, one notch above
the sovereign rating, with stable outlook.
RATIONALE FOR RATINGS OUTLOOK
The stable outlooks of the affected 16 non-financial corporates
are in line with the stable outlook on the sovereign rating and reflect
Moody's expectation that each company's specific credit factors,
including their operating and financial performance, market position,
financial leverage and liquidity will remain commensurate with their ratings
on a sustainable basis. In the case of GRIs, the stable outlook
also assumes no material negative government interference which could
translate into negative pressure at BCA level, and/or reduction
in state support.
PRINCIPAL METHODOLOGIES
The principal methodologies used in rating ALROSA PJSC and Alrosa Finance
S.A. were Mining published in September 2018 and Government-Related
Issuers published in June 2018. The principal methodologies used
in rating Atomenergoprom, JSC, RusHydro, PJSC and RusHydro
Capital Markets DAC were Unregulated Utilities and Unregulated Power Companies
published in May 2017 and Government-Related Issuers published
in June 2018. The principal methodologies used in rating ROSSETI,
PJSC, FGC UES, PJSC and Federal Grid Finance D.A.C.
were Regulated Electric and Gas Networks published in March 2017 and Government-Related
Issuers published in June 2018. The principal methodology used
in rating Federal Passenger Company OJSC was Global Passenger Railway
Companies published in June 2017. The principal methodology used
in rating Gazprom Neft PJSC, GPN Capital S.A.,
Lukoil, PJSC and LUKOIL International Finance B.V.
was Global Integrated Oil & Gas Industry published in October 2016.
The principal methodologies used in rating Gazprom, PJSC,
Gaz Capital S.A. and Gazprom ECP S.A. were
Global Integrated Oil & Gas Industry published in October 2016 and
Government-Related Issuers published in June 2018. The principal
methodology used in rating Magnitogorsk Iron & Steel Works,
NLMK, Steel Funding D.A.C.PAO Severstal and
Steel Capital S.A. was Steel Industry published in September
2017. The principal methodology used in rating MMC Norilsk Nickel,
PJSC and MMC Finance DAC was Mining published in September 2018.
The principal methodology used in rating PAO Novatek and Novatek Finance
Limited was Independent Exploration and Production Industry published
in May 2017. The principal methodologies used in rating Russian
Railways Joint Stock Company and RZD Capital PLC were Global Surface Transportation
and Logistics Companies published in May 2017 and Government-Related
Issuers published in June 2018. The principal methodologies used
in rating Transneft, PJSC were Regulated Electric and Gas Networks
published in March 2017 and Government-Related Issuers published
in June 2018. Please see the Rating Methodologies page on www.moodys.com
for a copy of these methodologies.
REGULATORY DISCLOSURES
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_202606
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and provides, for each of the credit
ratings covered, Moody's disclosures on the following items:
• Person Approving the Credit Rating
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.
The below contact information is provided for information purposes only.
Please see the ratings tab of the issuer page at www.moodys.com,
for each of the ratings covered, Moody's disclosures on the
lead rating analyst and the Moody's legal entity that has issued
the ratings.
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.
Artem Frolov
VP - Senior Credit Officer
Corporate 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
Client Service: 44 20 7772 5454
Victoria Maisuradze
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 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
Client Service: 44 20 7772 5454
