London, 03 September 2020 -- Moody's Investors Service ("Moody's") has today upgraded to Ba1 from Ba2
the corporate family rating and to Ba1-PD from Ba2-PD the
probability of default rating of Novorossiysk Commercial Sea Port,
PJSC (NCSP) the largest operator of marine port terminals in Russia.
The outlook on all ratings is stable. Concurrently, Moody's
has upgraded NCSP's baseline credit assessment (BCA) to ba1 from ba2.
RATINGS RATIONALE
Today's upgrade of NCSP's ratings reflects the stabilised shareholding
structure with the higher-rated Transneft, PJSC (Transneft,
Baa2 stable) as the company's controlling parent, and reduced
corporate governance risks following the approval of a new development
strategy, which remains prudent under the new ownership.
Moody's also expects NCSP to preserve its strong standalone credit
profile, despite the unprecedented pressure on its operations from
the coronavirus pandemic, which the agency regards as a social risk
under its environmental, social and governance (ESG) framework,
given the substantial implications for public health and safety.
Transneft acquired the controlling stake in the company in October 2018,
thus eliminating the long-standing uncertainty over the shareholding
structure, that historically weighed on its credit profile.
NCSP's credit profile also benefits from having the higher-rated
state-owned entity — and a major operating counterparty —
as its controlling shareholder. As the monopoly owner of the country's
oil and oil products pipeline system, to which NCSP has a well-established
connection, Transneft contributes to the port's operational
stability by mitigating risks arising from its high product concentration
in crude oil and oil products. NCSP's ports in Novorossiysk
and Primorsk, are also key destinations for Transneft's shipments
of crude oil for export. As a result, the control over the
company is important for Transneft, which allows it to ensure a
proper development of the port's oil and petroleum products facilities
and minimise the risk of disruption to its day-to-day operations.
The announcement of the new development programme in 2020 also materially
reduced the uncertainties over the ongoing integration of NCSP into Transneft,
including corporate governance considerations, and reinstated the
company's prudent approach to operating and financial strategies,
which is supportive to the company's standalone business profile
and credit quality. In particular, NCSP has accelerated the
expansion and modernisation of its port facilities in the largest Novorossiysk
port with a primary focus on developing more profitable non-oil
cargoes, which are non-core to Transneft, to grow its
cargo base and ensure greater business diversification. Overall,
NCSP plans to invest around RUB108.4 billion until 2029,
of which (1) RUB63.3 billion will be spent for reconstruction and
modernization of the existing facilities; and (2) RUB45.1
billion for the development of new port facilities with total capacity
of up to 21.8 million tonnes including the construction of a large
terminal for dry bulk and general cargoes as well as new terminals for
containers, fertilisers, and vegetable oil.
Despite the significant step-up in capital spending, on the
one hand, and, the economic and global trade disruptions caused
by the coronavirus pandemic, which will strain NCSP's operating
performance in 2020, on the other, Moody's expects the
company to maintain its strong standalone credit profile in the next 12-18
months.
The rapid and widening spread of the coronavirus pandemic, the deteriorating
global economic outlook, falling oil prices, and asset price
declines are creating a severe and extensive credit shock across many
sectors, regions and markets. The combined credit effects
of these developments are unprecedented. Transportation,
including port services, is among the sectors that face the greatest
earnings pressure globally and in Russia, given its sensitivity
to consumer demand and business activities. Although the corresponding
rouble depreciation has provided some support to export operations,
the global commodity market disruptions, including the drop in oil
demand and production cuts by Russian oil companies under the new OPEC+
deal, will reduce NCSP's turnover, which may fall by
around 15% in 2020 (including the impact of the grain terminal
sale in May 2019) before it gradually recovers over 2021-22.
At the same time, the weaker rouble will help NCSP preserve its
strong profitability through the crisis given that most of its costs are
denominated in roubles, while around 70% of its total revenue
is linked to US dollars. The company's focus on enhancing
its operating efficiencies and tight cost control, along with expansion
of higher-margin bulk cargoes, will further support its adjusted
EBITDA margin, which will likely remain comfortably above 65%.
While the company's expansion projects will largely be debt-funded
with investments peaking in 2021-24, NCSP will also retain
flexibility in adjusting its capital spending plan with the final decision
on each project to be made based on market conditions and availability
of financing. In addition, although NCSP significantly increased
its dividend payouts after Transneft acquired the port, including
RUB26 billion to be paid in 2020, these extraordinary dividends
will be fully covered by available cash proceeds of RUB35.8 billion
from the grain terminal sale. Dividends are also likely to moderate
starting 2021 under NCSP's dividend policy, which Moody's
considers fairly prudent given its linkage to the company's available
free cash flow.
As a result, Moody's expects NCSP's financial metrics
to remain sound in 2020-21, with adjusted funds from operations
(FFO)/debt remaining well above 25% and adjusted debt/EBITDA staying
below 2.5x, although still subject to uncertainties around
the evolution of the pandemic and the global economic outlook.
The agency also notes NCSP's lack of a track record of consistent
adherence to a balanced financial policy, which, in particular,
includes NCSP's commitment to maintain its reported net debt/EBITDA
below 3.0x through investment and industry cycles. At the
same time, NCSP's credit profile is further supported by the
comfortable capacity for some increase in leverage under NCSP's
current rating (for the 12 months that ended 31 March 2020, its
adjusted FFO/debt remained at 44%) as well as strong credit metrics
and liquidity of the parent company, Transneft, with adjusted
debt/EBITDA of 1.7x as of 31 March 2020.
The rating continues to reflect NCSP's position as Russia's largest
multi-cargo seaport operator, with a favourable geographical
location and well-developed connecting infrastructure. At
the same time, the rating remains constrained by its high product
concentration in competitive crude oil, which is, however,
partly offset by its gradual diversification into oil products and more
profitable general and dry bulk cargoes. Although NCSP's
focus on export commodities mitigates its exposure to Russia's volatile
operating environment, the company is exposed to the evolving regulatory
and legal environment in the country.
NCSP will maintain sound liquidity over at least the next 12 months to
be supported by its (1) large cash balance after the sale of the grain
terminal with around RUB34.8 billion available as of 30 June 2020;
(2) comfortable debt-maturity profile, with an annual debt
repayment requirement of around $200 million; (3) fairly flexible
investment plan; and (4) prudent dividend policy. Although
the company does not have any committed credit facilities available,
it should be able to easily secure external funding including for the
financing of its expansion projects, given its strong business profile
and Transneft as the majority owner.
Because the Russian government owns a 20% stake in NCSP and a "golden
share", Moody's applies its Government-Related Issuers
methodology. The Ba1 corporate family rating reflects a combination
of (1) a BCA of ba1; (2) Russia's Baa3 foreign currency rating with
a stable outlook; (3) the moderate default dependence between NCSP
and the government; and (4) the low probability of government support
in the event of financial distress.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The stable outlook on NCSP's rating reflects Moody's expectation
that in the next 12-18 months the company will maintain its sound
credit profile with the risks related to the evolving pressure from the
pandemic and the planned step-up in investments mitigated by the
current leverage capacity, some flexibility in its dividends and
development programme, and benefits from being part of a large state-owned
entity, Transneft.
There is a room for a positive pressure on the rating given the company's
strong credit metrics and supportive controlling shareholder. NCSP's
rating could be upgraded if the company were to build a track record of
consistent adherence to effective and transparent corporate governance
and conservative financial policies, demonstrate an efficient implementation
of its development programme, while preserving a strong market position
in Russia and solid financial profile with adjusted funds from operations
(FFO)/debt above 25%, and healthy liquidity at all times,
including during an active investment phase.
NCSP's rating could be downgraded if its liquidity and financial
profiles deteriorate materially, with adjusted FFO/debt declining
towards 15% on a sustained basis as a result of (1) a weakening
in the company's market position and deterioration in its operating
performance, and (2) an aggressive investment programme or shareholder
distributions.
PRINCIPAL METHODOLOGIES
The methodologies used in these ratings were Privately Managed Port Companies
published in September 2016 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1040210,
and Government-Related Issuers Methodology published in February
2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1186207.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of these methodologies.
COMPANY PROFILE
Novorossiysk Commercial Sea Port, PJSC (NCSP) is the largest operator
of marine port terminals in Russia and the third-largest in Europe
by volume. NCSP operates two key ports: (1) the port of Novorossiysk,
located in the Black Sea basin; and (2) the Primorsk Trade Port,
in the Baltic Sea basin. For the 12 months that ended 31 March
2020, NCSP generated revenue of $827 million and adjusted
EBITDA of $642 million. The controlling shareholder of NCSP
is Transneft, PJSC (Transneft, Baa2 stable), with a
62% share, while the Government of Russia (Baa3 stable) owns
a 20% stake in the company and a golden share.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security 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
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tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
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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.
The ratings have been disclosed to the rated entity or its designated
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These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
At least one ESG consideration was material to the credit rating action(s)
announced and described above.
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.
Ekaterina Lipatova
Vice President - Senior Analyst
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
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Client Service: 44 20 7772 5454
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