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Fitch Revises SINEK's Outlook to Positive; Affirms at 'BB+'
October 17, 2017 / 1:38 PM / in 2 months

Fitch Revises SINEK's Outlook to Positive; Affirms at 'BB+'

(The following statement was released by the rating agency) MOSCOW, October 17 (Fitch) Fitch Ratings has revised OJSC Svyazinvestneftekhim's (SINEK) Outlook to Positive from Stable. SINEK's Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) have been affirmed at 'BB+' and Short-Term Foreign Currency IDR has been affirmed at 'B'. SINEK Finance's outstanding domestic bond's (ISIN RU000A0JXVE5) senior unsecured rating has also been affirmed at 'BB+'. The revision of the Outlook followed a similar rating action of the sponsor - Republic of Tatarstan (Tatarstan, BBB-/Positive/F3; see 'Fitch Revises 5 Russian LRGs' Outlook to Positive on Sovereign Rating Action' dated 29 September 2017 at www.fitchratings.com). Fitch classifies SINEK as a credit-linked entity to Tatarstan under its 'Rating of Public-Sector Entities Criteria'. This reflects 100% ownership of SINEK by the republic, its tight control and the high strategic importance of the company for the republic's economic development. At the same time, moderate integration with the government's finances, particularly a lack of explicit Tatarstan's guarantees on the company's liabilities, leads to a one-notch differential between SINEK's and Tatarstan's ratings. SINEK Finance's bond rating is in line with SINEK's Long-Term Local-Currency IDR. This reflects the unconditional, unsubordinated and irrevocable buyback guarantee provided by SINEK to bondholders. KEY RATING DRIVERS Strategic Importance assessed as Stronger Fitch assesses SINEK's strategic importance as strong as the company is Tatarstan's only specialised public sector entity (PSE) by managing the republic's equity investments and local economic development. In addition to its major role as investment holding company, SINEK acts as the republic's vehicle for raising funds on financial markets and contributes to the stability and development of the republic's financial sector. SINEK is on the list of strategically important enterprises for Tatarstan Republic, according to the decree of the President of Tatarstan. Control assesses as Stronger SINEK operates under strict control and oversight from Tatarstan, which determines all major decisions including strategic goals, issue of new shares, decisions on dividends, approval of large transactions, as well as the appointment of the audit committee and external auditor. SINEK's borrowing plan is also subject to government approval. SINEK's board of directors is chaired by Tatarstan's President Rustam Minnikhanov and includes other top-ranking government officials. Legal Status assessed as Midrange Fitch assesses the entity's legal status as midrange as SINEK operates under the general law on commercial entities in Russia. No special law was established to regulate its activity, and no tax incentives at the federal or local levels were provided. There are no plans of SINEK's privatisation or to reduce Tatarstan's shareholding in the company. Integration assessed as Midrange Fitch views SINEK's budgetary and financial integration with Tatarstan as moderate. The company has a separate balance sheet and the republic is not legally responsible for SINEK's obligations. Historically, SINEK has never received direct financial aid from Tatarstan, but dividends from the republic's portfolio companies are retained within SINEK. The bulk of these funds are further allocated to local economic agents at the republic's discretion in the form of investments, charitable donations or financial assets (deposits, subsidised loans). Sound Capitalisation, Low Leverage SINEK has a strong capital structure and low leverage as expressed in an equity and reserves/total assets ratio of 83% and a total debt/total assets of 3.5% in 2016 (2015: 79% and 7.3% respectively). Debt has slightly increased so far in 2017 after SINEK issued (via SINEK-Finance) its first domestic bond of RUB20 billion due in 2022. Constraints to Standalone Profile SINEK was profitable in 2014-2016 with dividends remaining the largest source of income. However, SINEK has been historically exposed to dividend concentration, with PJSC Tatneft (BBB-/Stable), Russia's fifth-largest oil producer, representing more than 70% of dividend income. SINEK's financial performance is therefore primarily correlated with the financial results of Tatneft. SINEK's credit profile is also constrained by exposure to the republic's largest bank Ak Bars Bank, which has received support from SINEK in the past. RATING SENSITIVITIES Rating direction for SINEK will depend on Tatarstan's ratings, as the company is credit-linked to the republic. In addition, changes to SINEK's policy role that would lead to a dilution of control by, or diminished likelihood of support from, Tatarstan could result in a widening of the notching from Tatarstan's ratings. Contact: Primary Analyst Victoria Semerkhanova Associate Director +7 495 956 99 65 Fitch Ratings CIS Ltd 26 Valovaya Street Moscow 115054 Secondary Analyst Vladimir Redkin Senior Director +7 495 956 24 05 Committee Chairperson Guilhem Costes Senior Director +34 93 323 8410 Media Relations: Julia Belskaya von Tell, Moscow, Tel: +7 495 956 9908, Email: julia.belskayavontell@fitchratings.com; Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria International Local and Regional Governments Rating Criteria - Outside the United States (pub. 18 Apr 2016) here Rating of Public-Sector Entities – Outside the United States (pub. 22 Feb 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. 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Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. 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