(The following statement was released by the rating agency)
Dec 22 - Fitch Ratings has affirmed Tatarstan government-owned investment holding company OAO Svyazinvestneftekhim’s (SINEK) Long-term foreign and local currency Issuer Default Ratings (IDRs) at ‘BBB-’ and its Short-term foreign currency IDR at ‘F3’. The Outlooks on the Long-term IDRs are Stable.
Fitch has also affirmed the ‘BBB-’ foreign currency senior unsecured rating of Edel Capital S.A.’s USD250m loan participation notes due 2015. The notes are guaranteed by SINEK and the Republic of Tatarstan (RoT, ‘BBB-'/Stable).
SINEK’s rating 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 Tatarstan government’s explicit guarantee of the USD250m notes (on-lent to SINEK), a USD31.8m loan as well as significant contributions in kind historically made by the RoT.
The USD250m notes have a put option in August 2012. Fitch notes that the bonds trade currently above their par value, which may indicate a low incentive to exercise the put option. Nevertheless, should the entire outstanding amount of bonds become due and payable in 2012, prospective sources of financing the redemption include primarily cash and deposit balances (held mainly at Tatarstan’s largest bank, Ak Bars Bank, ‘BB’/Stable) and cash flow from operations (ie mainly dividend income). Fitch believes that additional financing may come also from asset disposal proceeds and support from the RoT.
SINEK’s cash and deposit balances at end-November 2011 amounted to USD549.2m, of which USD463m (or 84% of the total balance) was held at Ak Bars. Fitch takes a conservative approach with respect to potential full recoverability of the deposits but at the same time notes that Ak Bars’ financial profile should allow SINEK to withdraw a significant portion of deposits potentially required for bond redemption without negative pressure on Ak Bars’ liquidity.
Fitch positively views SINEK’s prospects for a high dividend income in 2012 mainly following the sound financial results of Tatneft (‘BB’/Stable). High oil prices were the main contributor to a yoy 48% increase in net profit attributable to shareholders in 9M2011.
An upgrade or downgrade of the RoT’s rating would be reflected by SINEK’s rating. Fitch notes that if SINEK issues new debt, which is not guaranteed by the RoT, the agency will reassess the ties between the company and RoT, which may result in downward pressure on SINEK’s ratings.