Bloomberg News

Moody’s Sees Russian Companies Holding Ratings on Crude Prices

October 24, 2012

Corporate borrowers in Russia are more likely than in Europe, the Middle East and Africa to retain their credit ratings next year as higher oil prices and low debt levels help them weather the global slowdown, according to Moody’s Investors Service.

There have been no Russian corporate defaults over the past 12 months, while six non-financial companies have failed to make payments in the wider region known as EMEA, Moody’s analysts wrote in a report released today. Of the 71 rated companies in Russia and the former Soviet Union, five have negative outlooks or were placed under review this year through September, according to estimates by the ratings company.

“Russian corporates are in a more stable position,” Victoria Maisuradze, an associate managing director at Moody’s in Moscow, said by phone yesterday. “They have been more conservative about spending. Energy prices are still high, allowing companies to generate cash.”

Urals crude, Russia’s chief export blend and biggest revenue-earner, has climbed from an average of about $62 a barrel in 2009 to $111 this year, data compiled by Bloomberg show. The Russian economy expanded 4 percent in the second quarter, compared to growth of 2.4 percent in Poland, 2.9 percent for Turkey and 3 percent in South Africa.

The yield premium bondholders demand from Russian borrowers compared with their emerging-market peers narrowed to 3 basis points yesterday, down from this year’s high of 86 basis points on Jan. 5, JPMorgan Chase & Co. indexes show. The yield premium on Polish corporate bonds was 387 basis points yesterday.

Cash Reserves

Russian companies have built up cash reserves and deleveraged or refinanced debt on better terms since the global financial crisis of 2009, according to the Moody’s report. While Russia’s gross domestic product growth will probably slow to 3.5 percent this year and 4 percent in 2013, credit downgrades won’t increase “materially,” it said. The economy expanded 4.3 percent in 2011 and 2010.

Euro-area services and manufacturing output contracted more than economists forecast in October and German business confidence dropped to the lowest in more than 2 1/2 years, reports released yesterday showed.

While Urals crude is trading an average $1.26 more this year than in 2011, prices for the blend slipped for a seventh day yesterday, the longest stretch of declines since July 2009. Yields on ruble-denominated debt due 2014 of OAO Gazprom, Russia’s largest company, climbed 43 basis points yesterday to 8.2 percent, and the government scrapped an auction of bonds for the first time since May after investors demanded higher returns.

MegaFon on Review

Most downgrades or reductions in outlook for Russian corporates are spurred by events specific to the company, Maisuradze said.

Moody’s placed Moscow-based OAO Megafon (MFON)’s rating of Baa3, the lowest investment grade, on review for downgrade in April after the mobile-phone services provider announced that it intended to use debt to finance a one-time dividend payout and purchase shares associated with the change in its shareholding structure.

The New York-based ratings company also put OAO Rosneft, Russia’s largest oil producer, under review for a possible downgrade because of a lack of information on how the state- backed company will finance $28 billion of the $45 billion it needs to raise for the buyout of BP Plc (BP/)’s Russian joint venture TNK-BP. Rosneft is rated Baa1 by Moody’s, the third-lowest investment grade and the same level as the government.

To contact the reporter on this story: Maria Levitov in London at mlevitov@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net


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