Fitch Affirms Russia's Yakutskenergo at 'BB'; Outlook Stable
July 27, 2012 Fitch Ratings
Fitch Ratings-London/Moscow-27 July 2012: Fitch Ratings has affirmed Russia's OAO AK Yakutskenergo's Long-term foreign currency Issuer Default Rating (IDR), Long-term local currency IDR and local currency senior unsecured rating at 'BB'. The agency has also affirmed its National Long-Term rating at 'AA-(rus)'. The Outlook on the Long-term ratings is Stable.
Fitch continues to assess the company's credit strength at three notches below that of the Russian Federation, its ultimate shareholder, due to its strategic importance to the economy of the Republic of Sakha (Yakutia) ('BB+'/Positive), strong operational influence through tariff-setting, direct state subsidisation and state-bank financing. The agency expects that state support for Yakutskenergo will remain in place, at least over the medium term.
Fitch assesses the strength of linkage between Yakutskenergo and JSC RusHydro (RusHydro, 'BB+'/Positive), the parent of Yakutskenergo's majority shareholder JSC RAO Energy Systems of East, as moderate, and maintains the one-notch differential between their IDRs. Fitch will continue to monitor the evolution of the legal, operational and strategic ties between RusHydro and Yakutskenergo and may review its rating approach if the linkage strengthens through e.g., equity capital injections or large intra-group loans from RusHydro to improve Yakutskenergo's liquidity and debt profile.
Yakutskenergo has weak operating and financial metrics contributing to a standalone credit profile in the 'B' category. At end-2011, its gross consolidated debt amounted to RUB9.4bn, around 40% of which was short term and the rest was due in 2013, including RUB3bn domestic bonds. Cash balances were RUB491m and undrawn credit lines were immaterial. The company reported no significant changes in its debt maturity profile in the period ended 31 May 2012.
Yakutskenergo's current leverage is significantly higher than that of other state-owned Russian power and heat generation companies, owing to considerable capex needs coupled with modest profitability. Yakutskenergo's tariffs for electivity, heat and transmission remain fully regulated. Fitch expects that the company will increase its funds from operations (FFO) adjusted net leverage to just above 4x in 2014 mainly due to debt-funded capex.
Yakutskenergo, including subsidiaries, is a small power and heat generation and distribution company located in the Far East of Russia with 1.45 GW of installed power capacity, 2,056 GCal/hour of heat capacity and over 20,000km of power transmission lines. At end-Q112, RusHydro controlled 29.0% of Yakutskenergo's ordinary shares directly and 55.3% via RAO UES East, in which it owned 65.6% of ordinary shares.
WHAT COULD TRIGGER A RATING ACTION?
Positive: Future developments that may, individually or collectively, lead to positive rating action include:
-Strengthening ties between Yakutskenergo and RusHydro, and/or Yakutskenergo and the Russian Federation, possibly manifested by more tangible support received by Yakutskenergo in the form of intra-group loans, equity injections and/or loan guarantees.
-An upgrade of the rating of the Russian Federation, and/or RusHydro.
Negative: Future developments that may, individually or collectively, lead to negative rating action include:
-A downgrade of the rating of the Russian Federation, and/or RusHydro.
-Weakening ties between Yakutskenergo and RusHydro, and/or Yakutskenergo and the Russian Federation.
Company — Yakutskenergo
Full nameOpen joint stock company Yakutskenergo