Actions follow confirmation of Russia's Baa1 government bond rating
London, 01 July 2014 -- Moody's Investors Service has today confirmed the ratings of two
Russian sub-sovereign and three government-related issuers
following the rating agency's confirmation of Russia's sovereign
bond rating at Baa1 with a negative outlook on 27 June 2014. For
additional information, please refer to the related announcement:
https://www.moodys.com/research/PR_301804.
Specifically, Moody's has confirmed the following ratings:
(1) the foreign- and local-currency issuer ratings and foreign-currency
senior unsecured rating of the City of Moscow at Baa1
(2) the foreign- and local-currency issuer ratings and local-currency
senior unsecured rating of the City of St. Petersburg at Baa1
(3) the foreign- and local-currency issuer ratings of SUE
Vodokanal of St. Petersburg at Baa2
(4) the senior unsecured rating of OOO Vodokanal Finance at Baa2
(5) the senior unsecured rating of OJSC Western High-Speed Diameter
at Baa3.
All the above-mentioned ratings carry negative outlooks,
and today's actions conclude the review that Moody's initiated
on 1 April 2014.
In addition, Moody's has affirmed the ratings of 17 Russian
regional and local governments (RLGs) with their existing outlooks.
The ratings of 14 RLGs were affirmed with stable outlooks. The
ratings of Krasnodar Krai, Belgorod Oblast and Vologda Oblast have
also been affirmed with negative outlooks.
A full list of affected issuers and credit ratings can be found at the
end of this press release.
RATINGS RATIONALE
--- RATIONALE FOR THE CONFIRMATIONS
The confirmation of the ratings on the cities of Moscow and St.
Petersburg directly follows the confirmation of the sovereign bond rating,
given their institutional and macroeconomic linkages to the national government.
The confirmation of the issuer ratings of SUE Vodokanal of St.
Petersburg, the senior unsecured rating of OOO Vodokanal Finance,
and senior unsecured rating of OJSC Western High-Speed Diameter
reflects their status as government-related issuers (GRIs),
wholly owned by the St. Petersburg government.
The confirmation of OJSC Western High-Speed Diameter's bond
rating reflects its link with the City of St. Petersburg and the
quality of the guarantee that the Russian government provides on its bond
principal payments. This guarantee covers overall principal payments
(including put options) and principal acceleration.
--- RATIONALE FOR ASSIGNING NEGATIVE OUTLOOKS ON
THESE ENTITIES
The negative outlooks on the ratings of the cities of Moscow and St.
Petersburg mirror the negative outlook on the sovereign bond rating.
The ratings of these cities continue to incorporate a moderate probability
of extraordinary support coming from the federal government if the cities
were to face acute liquidity stress. This support ensures one notch
of uplift from their respective baseline credit assessments.
The negative outlooks on the ratings of SUE Vodokanal of St. Petersburg
reflect the negative outlook on the City of St. Petersburg.
SUE Vodokanal of St. Petersburg is strongly dependent on ongoing
and extraordinary support from the city.
The negative outlook on the ratings of OJSC Western High-Speed
Diameter mirrors the negative outlook on the City of St. Petersburg
and the sovereign government bond rating.
--- RATIONALE FOR AFFIRMATIONS OF 14 RLGs WITH STABLE
OUTLOOKS
Moody's affirmations of 14 RLG ratings (please see the end of this
press release for details) with stable outlooks reflect these entities'
capacity to withstand moderate systemic pressure. The ratings of
these RLGs remain between two and six notches below the sovereign,
and their positioning on the rating scale confers a certain tolerance
buffer if the sovereign's creditworthiness incurs mild deterioration.
Moody's notes that Russian regions usually demonstrate adequate
capacity to manage short-term refinancing risks during periods
of greater systemic risk, aided both by the national government's
liquidity access mechanism for RLGs (which helps to offset immediate liquidity
pressures) and by ongoing lending from state-owned banks.
The RLGs' debt structure, which is almost free of foreign-currency
risk, and the growing maturities of local-currency borrowing
also help to mitigate refinancing risks.
--- RATIONALE FOR AFFIRMATION OF 3 RLGs WITH NEGATIVE
OUTLOOKS
The ratings of Krasnodar Krai, Belgorod Oblast and Vologda Oblast
were affirmed with negative outlooks which continue to reflect the expected
deterioration of their key financial and debt metrics (please see details
on the individual issuers on www.moodys.com).
WHAT COULD CHANGE THE RATINGS UP/DOWN
--- RATINGS WITH NEGATIVE OUTLOOKS
For City of Moscow and St. Petersburg, the ratings will move
in tandem with the sovereign rating. In turn, if the outlook
on the sovereign rating is changed to stable, the negative outlook
on these sub-sovereign ratings will also likely be changed to stable,
provided there is no deterioration in idiosyncratic factors (e.g.,
debt burden, budgetary performance and/or liquidity) below projected
metrics.
For SUE Vodokanal, a downward revision of the ratings will likely
follow the revision of St. Petersburg's ratings. Substantial
debt growth, coupled with weak margins -- in addition
to negative changes in the institutional and financial framework under
which SUE Vodokanal operates -- could also exert downward
pressure on the company's ratings. Upward rating pressure,
unlikely in the short term, will stem from a stabilisation of St.
Petersburg's ratings. A steady improvement in margins and
an ability to extend debt maturities, coupled with a sustainable
debt burden, could also exert upward pressure on the ratings.
Changes to the ratings of OJSC Western High-Speed Diameter will
directly mirror the rating evolution of St. Petersburg, the
sovereign, and their respective outlooks.
For Krasnodar Krai, Belgorod Oblast and Vologda Oblast, downward
pressure would stem from a continued deterioration of their financial
and debt metrics. Upward pressure would develop if debt levels
reduce steadily and if the accounts become more structurally balanced
(for details please see the relevant Credit Opinions on www.moodys.com).
--- RATINGS WITH A STABLE OUTLOOK
For all Russian RLGs whose ratings have a stable outlook, downward
pressure may materialise from the rapid deterioration in their financial
metrics, leading to significantly increasing idiosyncratic risks.
In contrast, upward rating pressure on Russian RLGs will be determined
by the improving individual financial profiles of the above-mentioned
sub-sovereigns, such as significant debt reduction and/or
structurally balanced budgets and improving liquidity profiles.
RATINGS AFFECTED
THE RATINGS OF THE FOLLOWING FIVE ISSUERS WERE CONFIRMED:
- Moscow, City of: Baa1 issuer and debt ratings,
outlook negative.
- St. Petersburg, City of: Baa1 issuer and debt
ratings, outlook negative.
- SUE Vodokanal of St. Petersburg: Baa2 issuer rating,
outlook negative.
- OOO Vodokanal Finance: Baa2 debt rating, outlook
negative.
- OJSC Western High-Speed Diameter: Baa3 debt rating,
outlook negative.
THE RATINGS OF THE FOLLOWING 17 ISSUERS WERE AFFIRMED:
- Bashkortostan, Republic of: Baa3 issuer rating,
stable outlook maintained
- Tatarstan, Republic of: Baa3 issuer rating,
stable outlook maintained
- Khanty-Mansiysk AO: Baa3 issuer rating, stable
outlook maintained
- Samara, Oblast of: Ba1 issuer rating, stable
outlook maintained
- Krasnodar, Krai of: Ba1 issuer and debt ratings,
negative outlook maintained
- Komi, Republic of: Ba2 issuer and debt ratings,
stable outlook maintained
- Krasnoyarsk, Krai of: Ba2 issuer rating, stable
outlook maintained
- Moscow, Oblast of: Ba2 issuer rating, stable
outlook maintained
- Chuvashia, Republic of: Ba2 issuer and debt ratings,
stable outlook maintained
- Omsk, Oblast of: Ba2 issuer rating, stable
outlook maintained
- Nizhniy Novgorod, Oblast of: Ba2 issuer rating,
stable outlook maintained
- Krasnodar, City of: Ba2 issuer rating, stable
outlook maintained
- Belgorod, Oblast of: Ba2 issuer and debt ratings,
negative outlook maintained
- Omsk, City of: Ba3 issuer rating, stable outlook
maintained
- Volgograd, City of: Ba3 issuer rating, stable
outlook maintained
- Vologda, Oblast of: Ba3 issuer rating, negative
outlook maintained
- Mordovia, Republic of: B1 issuer and debt ratings,
stable outlook maintained
The sovereign action required the publication of this credit rating action
on a date that deviates from the previously scheduled release date in
the sovereign release calendar, published on www.moodys.com.
Specific economic indicators as required by EU regulation are not applicable
for these entities.
On 26 June 2014, a rating committee was called to discuss the ratings
of Russian sub-sovereign entities. The main points raised
during the discussion were: The systemic risk in which the issuers
operate has materially increased.
The principal methodology used in rating Russia RLGs was Regional and
Local Governments published in January 2013. The principal methodology
used in rating Russia GRIs was 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 weighting of all rating factors is described in the methodology used
in this rating action, if applicable.
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.
Vladlen Kuznetsov
Vice President - Senior Analyst
Sub-Sovereign Group
Moody's Investors Service Limited, Russian Branch
7th floor, Four Winds Plaza
21 1st Tverskaya-Yamskaya St.
Moscow 125047
Russia
David M Rubinoff
MD - Sub-Sovereigns
Sub-Sovereign Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Ltd.
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Canary Wharf
London E14 5FA
United Kingdom
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SUBSCRIBERS: 44 20 7772 5454
Moody's takes rating actions on Russian sub-sovereigns
