Moody's rates RusHydro's Notes (P)Ba1
JSC RusHydro (ticker symbols: RTS, MICEX, LSE: HYDR; OTCQX: RSHYY) announces that Moody's Investors Service has assigned a (P)Ba1 rating with stable outlook to the proposed rouble denominated Loan Participation Notes to be issued by RusHydro Finance Limited, a special purpose vehicle, incorporated under the laws of Ireland, of JSC RusHydro, for the sole purpose of financing a loan to RusHydro.
The (P) Ba1 rating assigned to the Notes is equivalent to RusHydro's corporate family rating, given that RusHydro Finance is issuing the Notes for the sole purpose of financing a loan to RusHydro and therefore Noteholders are relying solely on the latter's creditworthiness to service and repay the Notes. RusHydro will use proceeds of the respective loan for general corporate purposes, including investments. The provisional rating and provisional LGD assessment of LGD4 are based on the assumption that the Notes will rank pari passu with other senior unsecured and unsubordinated financial indebtedness of RusHydro (apart from obligations mandatorily preferred by law). The proposed Notes are subject to some restrictions and covenants, including a limitation on incurrence of indebtedness. Moody's issues provisional ratings in advance of the final sale of securities and these ratings reflect Moody's preliminary credit opinion regarding the transaction only. Upon a conclusive review of the final documentation, Moody's will endeavour to assign a definitive rating to the Notes. A definitive rating may differ from a provisional rating.
Moody's regards RusHydro as a government-related issuer (GRI). In accordance with Moody's GRI rating methodology, the ratings of RusHydro and of the proposed Notes incorporate uplift from RusHydro's standalone credit quality measured by a Baseline Credit Assessment (BCA) of 13 (on a scale of 1 to 21 and equivalent to Ba3). The uplift to the BCA is driven by the credit quality of the Russian government, which owns around 60% of the company's shares, and Moody's assessment of strong probability of state support in the event of financial distress, as well as high default dependence between the company and the government.
RusHydro's ratings remain constrained by the low visibility of the evolution of its credit profile in the medium term, with headroom under the company's financial metrics regarded as transitional. At the same time, the ratings are underpinned by the company's strong business fundamentals as Russia's largest low-cost hydro generator, which is well positioned to benefit from the liberalisation of Russia's wholesale power market and should be able to absorb the risks of market fluctuations.
The outlook on the ratings is stable, factoring in the headroom in the company's financial profile at the end of 2009 and its expected mediumterm development within the current rating category and acceptable liquidity. Moody's currently considers an upward revision in RusHydro's ratings to be unlikely in the near term as the company's credit profile is expected to evolve, pressured by the challenges both specific to the company and the Russian electric utility sector.
RusHydro's BCA could be negatively impacted, if there were a negative shift in the evolving regulatory and market framework and the company failed to limit deterioration of its financial profile, with the Debt-to-EBITDA ratio above 3x, while FFO interest coverage and the RCF-to-Debt ratios fall below 5.0x and 30%, respectively. The company's inability to maintain adequate liquidity could also pressure the rating. Negative pressure on the rating could also result from Moody's assessment of a material reduction in the probability of state support.
The principal methodologies used in rating RusHydro were Government-Related Issuers: Methodology Update published in July 2010 published in July 2010 and Rating Methodology for Global Unregulated Utilities and Power Companies published in August 2009. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found 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).
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's information, confidential and proprietary Moody's Analytics' information.
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