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S&P: OJSC RBC Information Systems Ratings Cut To 'CCC/ruB', On Watch Dev On Refinancing Uncertainty

November 6, 2008
LONDON (Standard & Poor's) Nov. 5, 2008--Standard & Poor's Ratings Services said today that it had lowered its long-term corporate credit rating on Russian media group OJSC RBC Information Systems (RBC) to 'CCC' from 'B'. At the same time, the Russia national scale and senior unsecured debt ratings on RBC were lowered to 'ruB' from 'ruBBB+', and the short-term corporate credit rating was lowered to 'C' from 'B'. In addition, Standard & Poor's said that it maintains the ratings on CreditWatch, but has revised the implications to developing from negative.

"The downgrades reflect RBC's severe liquidity problems, arising from material impairments to its investment portfolio and the uncertain progress in its refinancing efforts, in an environment of particularly tough capital market conditions in Russia," said Standard & Poor's credit analyst Raam Ratnam.

"The revised CreditWatch placement follows the management team's efforts to restructure the group's short-term debt and explore additional sources of long-term financing, including attracting new equity investors."

The recent sharp fall in equity prices in Russia has had a dramatic effect on the value of the group's financial investments-–which we currently view as illiquid and of highly uncertain value. RBC no longer has sufficient liquid assets to cover debt obligations through to the end of 2009.

At this stage, RBC's capacity to meet its debt obligations is therefore dependant on additional equity financing, the rollover of debt maturities, or issuance of new debt. Although we acknowledge that these financial resources could become available in the short term–-provided management is able to progress its refinancing plans--this move remains beset with uncertainties in the current market conditions. A failure to secure such resources could rapidly prompt a default.

Beyond the immediate liquidity concerns, RBC's business performance continues to suggest higher long-term credit fundamentals. However, we believe that the pace of growth in the Russian advertising market has slowed down overall, with some sectors significantly curtailing their advertising expenditures. In our opinion, this will mean that RBC will be unable to sustain its strong operating performance of the first half of 2008 in the second half of the year and into 2009. Nevertheless, if the near-term financing difficulties can be overcome, RBC has the potential to build on its strong market positions in several segments of the Russian media sector.

"In resolving the CreditWatch, we will take into account RBC's plans to refinance its 2009 debt maturities and put in place suitable financing to cover debt obligations at least until financial year-end 2009," added Mr. Ratnam. "We will also expect the group to provide details of how it will reduce its costs base and control capital expenditures, while at the same time continuing to increase its share of the Russian media market. Furthermore, as part of our review, we will reassess the group's efforts to improve corporate governance, risk management, internal controls, and operations to better protect the interests of its bondholders and stakeholders."

On resolution of the CreditWatch, the ratings could be either lowered, upgraded, or affirmed. A further downgrade would reflect the group's inability to address its near-term refinancing needs. Equally, the ratings could be upgraded or affirmed if RBC is able to rapidly secure its 2008/2009 debt obligations through adequate refinancing and show prudent liquidity management.
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