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Sept 11 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has upgraded Tatarstan government-owned investment holding company OAO Svyazinvestneftekhim’s (SINEK) Long-term foreign and local currency Issuer Default Ratings (IDRs) to ‘BBB’ from ‘BBB-’ and affirmed the Short-term foreign currency IDR at ‘F3’. The Outlooks on the Long-term IDRs are Stable. The rating action follows the upgrade of the Republic of Tatarstan (RoT; see: “Fitch Upgrades Republic of Tatarstan to ‘BBB’; Outlook Stable” dated 1 August 2013).
Fitch has also upgraded Edel Capital S.A.’s USD250m loan participation notes due 2015 foreign currency senior unsecured rating to ‘BBB’ from ‘BBB-'. The notes are guaranteed by SINEK and the RoT.
SINEK’s ratings are linked to the sub-sovereign rating of the RoT, given the latter’s significant influence over the company. Direct support from the republic includes the RoT government’s explicit guarantee of the USD250m notes (on-lent to SINEK), a USD33m loan as well as significant contributions in kind historically made by the RoT.
Standalone Rating in ‘B’ Category Sinek’s business and financial profile are largely constrained by the company’s reliance on a dividend stream from a portfolio of non-investment grade companies. Fitch views Sinek’s credit profile as subordinate to the weighted credit profile of the portfolio companies due to the lack of direct legal access to operating cash flow and assets, which contributes to SINEK’s standalone credit rating in the ‘B’ rating category.
Sinek anticipates spending up to RUB4.7bn (USD157m) in 2013 and 2014 in support of investment projects on behalf of the RoT. The company plans to finance the investments with internal cash flows, which is neutral for the ratings. Fitch notes that RoT plans significant spending on infrastructure development over the medium term and SINEK’s involvement in further projects cannot be excluded.
Liquidity and Deposits
Short-term debt at end-2012 totalled USD33m and related to a loan from RoT’s Ministry of Finance. Cash on the balance sheet at end-2012 totalled USD53.8m, while deposits were USD268.9m. Deposits are mainly held at AK BARS Bank (BB-/Stable).
AK BARS Bank
Fitch considers AK BARS Bank’s financial situation as a primary concern for SINEK’s financial profile. In July 2012, the bank issued USD600m of bonds, half of which was purchased by a subsidiary of SINEK. SINEK did not participate in the refinancing subsequently undertaken by the bank.
SINEK’s debt, in addition to the related party loan, primarily includes Edel Capital S.A.’s USD250m loan participation notes on-lent to SINEK. The notes included a put option that could be exercised in August 2012. The redemptions under the put option were insignificant.
Positive: Future developments that may lead to positive rating action include:
- An upgrade of the RoT’s ratings.
Negative: Future developments that may lead to negative rating action include:
- A downgrade of the RoT’s ratings.
- Direct and material support provided to SINEK portfolio companies resulting in a significant deterioration of SINEK’s financial profile.
- Lack of guarantees on future debt issues may result in the reassessment of the strength of relationship with the RoT.