Jan 29 - Fitch Ratings has assigned Novatek Finance Limited’s RUB-denominated loan participation notes (LPNs) an expected local currency senior unsecured ‘BBB-(EXP)’ rating. The final rating is contingent upon final documents conforming to information already received. A full list of Novatek’s and Novatek Finance Limited’s ratings is below.
The LPNs will be issued on a limited recourse basis for the sole purpose of funding a loan by Novatek Finance Limited to OAO Novatek (‘BBB-'/Stable). The noteholders will rely solely on Novatek’s credit and financial standing for the payment of obligations under the notes. Novatek Finance Limited is a special purpose financing vehicle of Novatek, but is not directly or indirectly a subsidiary. Novatek will use the issue to refinance its debt portfolio.
Nortgas Acquisition Broadly Positive
Fitch affirmed Novatek’s investment-grade ratings in November 2012, following the announcement by Novatek that it will acquire a 49% stake in ZAO Nortgaz for USD1,375m. The other 51% stake is owned by the Russian gas giant OAO Gazprom (‘BBB’/Stable). Fitch views the acquisition as enhancing the company’s domestic business profile; although the joint venture’s dividend and capex policy remain unclear.
Little Additional Debt Headroom
The company’s ability to attract additional debt at the current rating level will remain limited. Fitch forecasts Novatek’s funds from operations (FFO) adjusted gross leverage ratio to average 1.7x in 2012-2014, close to the agency’s current negative rating guideline of 2x. Fitch also expects the company’s FFO interest coverage to average 11.5x in 2012-2014, slightly above the agency’s current negative rating guideline of 10x in 2013. Fitch’s forecasts are based on the agency’s crude oil price deck updated in December 2012, rising domestic gas prices and current taxation regime.
Yamal Could be Transformative
Novatek occupies a strategic position in the gas-rich Yamal region, where it has plans to develop two liquefied natural gas (LNG) production projects in the medium term, one with France’s Total SA (‘AA’/Stable) and another with Gazprom. The company’s scale relative to peers is currently a limiting factor for the rating. This may change once Yamal production comes on line.
Yurkharovskoye Production Key Concern
The future performance of the Yurkharovskoye field will be particularly important to increasing Novatek’s production levels. Failure to maintain the production of the field in the medium term may lead to downward pressure on Novatek’s ratings.
Rising Natural Gas Prices
Novatek continues to benefit from the government’s plan to liberalise the price of natural gas sold on the Russian domestic market by 2015-2018. Fitch expects domestic gas prices in Russia to increase by around 15% per year to 2015 implying relatively low price risk for the company. The agency also believes that the expected rising tax burden on independent gas producers will be fully offset by increasing domestic gas prices.
Positive: Expanded upstream business operations with a larger production profile, an improving domestic market share at liberalised prices and gaining access to LNG export markets would all be positive rating factors.
Negative: Novatek could be downgraded if its financial metrics undergo a sustained deterioration, possibly from additional acquisitions in 2013, making key cash flow and other credit ratios incommensurate with the current rating level. Novatek’s business risk is low, except for execution risk on Yamal LNG.
Adequate Liquidity: Novatek’s liquidity position is adequate for the current ratings. At 30 September 2012, cash on its balance sheet of RUB17.5bn coupled with last 12 months’ FFO of RUB80bn was adequate to cover RUB18.9bn of short-term debt.
Maturity Profile: Novatek’s debt maturity profile is not onerous, despite maturities of around RUB36bn over the next two years. Fitch expects the company to continue to enjoy ready access to international debt capital markets to further term out these maturities.
Long-Term foreign currency IDR: ‘BBB-'; Outlook Stable
Senior unsecured rating: BBB-’
Long-Term local currency IDR: ‘BBB-'; Outlook Stable
National Long-Term rating: ‘AA+(rus)'; Outlook Stable
National senior unsecured rating: ‘AA+(rus)’
Novatek Finance Limited
Senior unsecured rating: ‘BBB-'