TEXT-S&P summary: Mosenergo (AO)
(The following statement was released by the rating agency)
Oct 12 -
Summary analysis -- Mosenergo (AO) -------------------------------- 12-Oct-2012
CREDIT RATING: BB/Stable/-- Country: Russia
Primary SIC: Electric Services
Mult. CUSIP6: 037376
Credit Rating History:
Local currency Foreign currency
27-May-2011 BB/-- BB/--
24-Mar-2009 BB-/-- BB-/--
The rating on Russian electricity and heat generator Mosenergo (AO) reflects the company's stand-alone credit profile (SACP), which Standard & Poor's Ratings Services assesses at 'bb-'. The SACP is based on Mosenergo's "fair" business risk profile and "significant" financial risk profile as defined in our criteria. The rating continues to be supported by a one-notch uplift from the SACP, stemming from our view of the likelihood of ownership support from OAO Gazprom (BBB/Stable/A-2), which owns 53.47% of Mosenergo.
Mosenergo's SACP is constrained by what we see as the company's exposure to state intervention, untested electric power industry regulations, the volatile spot electricity market, and weak profitability in a wider context. In addition, Mosenergo has an ambitious capital-expenditure program in our opinion, which requires significant external financing and is likely to lead to sizable negative free operating cash flow (FOCF). A further constraint is the company's concentrated customer base and the historically negative impact of the regulator's interventions, in our view. The rating also reflects the somewhat unpredictable regulation of heat tariffs in Russia, which, despite improvements, remains opaque and is fairly politicized.
The rating is supported by our view of Mosenergo's strong market position in the relatively affluent City of Moscow (BBB/Stable/--) and the Moscow Oblast (not rated), as well as the operational benefits of its affiliation with and support from its majority owner, Gazprom, which supplies 98% of Mosenergo's fuel. We consider the rating to be further supported by low debt leverage, a competitive combined heat and power generation portfolio, a significant share of domestic regulated heat sales, and our anticipation of relatively modest dividend payments.
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