October 30, 2017 / 7:06 PM / in a month

Correction: Fitch Maintains Sistema on Rating Watch Negative

(The following statement was released by the rating agency) MOSCOW, October 30 (Fitch) This commentary corrects the version published on 30 October 2017 to remove the amount of credit lines in the liquidity section. Fitch Ratings has maintained Sistema Public Joint Stock Financial Corporation's (Sistema) ratings, including the Long-Term Issuer Default Rating (IDR) of 'BB-', on Rating Watch Negative (RWN) on uncertainty over the litigation with Rosneft. A full list of rating actions is at the end of this commentary. Rosneft filed claims against Sistema seeking RUB170.6 billion of damages for alleged abuse of Sistema's shareholding rights in PJSOC Bashneft (Bashneft) (BBB-/Stable), a medium-sized Russian oil company with legal registration in Russian Republic of Bashkortostan (BBB-/Stable), during the period when Sistema was the majority owner of Bashneft. The government of Bashkortstan, a shareholder in Bashneft, was accepted as the co-plaintiff. Bashneft is now a majority-controlled subsidiary of Rosneft, KEY RATING DRIVERS Litigation impact: Fitch placed Sistema's ratings on RWN in June 2017 following a Russian court injunction to freeze significant assets in relation to claims filed by Rosneft against Sistema. These include 31.76% equity interest in PJSC Mobile TeleSystems (MTS) (BB+/RWN), 100% equity stake in Medsi and 90.47% equity interest in Bashkirian Power Grid Company. In addition, bailiffs imposed additional restrictive measures prohibiting Sistema to receive any income on the frozen shares, including dividends. In August the court ruled that Sistema should pay RUB136 billion of damages to Rosneft for alleged abuse of Sistema's shareholding rights in Bashneft. Sistema strongly believes that Rosneft's claims are without merit and filed the appeal against the ruling. The total amount of claims is significant and equal to more than 4.5x dividends received by Sistema in 2016 from its operating subsidiaries. If satisfied in full, the impact on the company's leverage and its ratings is likely to be negative. The RWN is likely to be resolved when Fitch gains more clarity on the financial consequences of the litigation with Rosneft, and their implications for both Sistema and MTS. DERIVATION SUMMARY Sistema's credit profile is primarily shaped by the company's ability to control cash flows and upstream dividends from MTS. This is overlaid by a significant debt burden at the holdco level, including exposure to off-balance-sheet liabilities. Efforts to diversify dividend inflows are likely to take time before providing a sustainable contribution. KEY ASSUMPTIONS The RWN is driven by the assumption that Sistema may incur losses from the litigation initiated by Rosneft. RATING SENSITIVITIES Positive: Future developments that may individually or collectively lead to positive rating action -Sustained deleveraging at the holdco level to net debt including off-balance-sheet liabilities-to-normalised dividends received from Sistema's operating subsidiaries of under 2.5x (2016: 3.4x). Negative: Future developments that may individually or collectively lead to negative rating action -A protracted rise in net debt including off-balance-sheet liabilities-to-normalised dividends to above 4.5x. -A portfolio reshuffle increasing the share of subsidiaries with weak credit profiles. LIQUIDITY Comfortable Liquidity Challenged: We view Sistema's liquidity as comfortable. Cash on the balance sheet at the holding company level (RUB36.2 billion at end-2Q17), combined with available long-term credit lines cover scheduled 2017-2018 debt maturities, including off-balance liabilities related to Sistema Shyam TeleServices. The court's decision on assets freeze, if sustained, limits Sistema's ability to control a sizeable portion of its assets, and may reduce the flow of dividends to the holding company. FULL LIST OF RATING ACTIONS Sistema Joint Stock Financial Corp Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs): 'BB-'; maintained on RWN Senior unsecured debt: 'BB-'; maintained on RWN Sistema International Funding S.A. Loan participation notes guaranteed by Sistema: 'BB-'; maintained on RWN Contact: Principal Analyst Irina Andrievskaya Associate Director +44 20 3530 1715 Supervisory Analyst Slava Bunkov Director +7 495 956 9931 Fitch Ratings CIS Ltd 26 Valovaya Street Moscow 115054 Committee Chairperson Tajesh Tailor Senior Director +44 20 3530 1726 Additional information is available on www.fitchratings.com. For regulatory purposes in various jurisdictions, the supervisory analyst named above is deemed to be the primary analyst for this issuer; the principal analyst is deemed to be the secondary. Media Relations: Julia Belskaya von Tell, Moscow, Tel: +7 495 956 9908, Email: julia.belskayavontell@fitchratings.com; Adrian Simpson, London, Tel: +44 203 530 1010, Email: adrian.simpson@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Corporate Rating Criteria (pub. 07 Aug 2017) here Parent and Subsidiary Rating Linkage (pub. 31 Aug 2016) here Additional Disclosures 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. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. 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. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. 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. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below