S&P places Moscow Integrated Power Co. on CreditWatch Negative on weak liquidity
MOSCOW. Sept 30 (Interfax) - Standard & Poor's Ratings Services has placed its 'BB+' long-term corporate credit and 'ruAA+' Russian national scale ratings on Russian heating utility provider Moscow Integrated Power Company, JSC (MIPC) on CreditWatch with negative implications, the ratings agency said in a statement.
"The CreditWatch placement reflects our concerns about the company's continued heavy reliance on short-term borrowings and its currently weak liquidity position," said Standard & Poor's credit analyst Sergei Gorin.
The ratings reflect the agency's current assessment of a "high" likelihood of timely and sufficient extraordinary government support to MIPC based on its:
"Important" role as an essential infrastructure services provider, and
"Very strong" link with the government of the City of Moscow (BBB/Negative/--), which owns 83.77% of MIPC. The city has shown its support via direct equity injections: Russian ruble (RUR) 6.13 billion ($173 million) in 2008 and RUR11.17 billion ($315 million) in March 2009. Moreover, city-controlled Bank of Moscow has provided credit lines to cover the company's liquidity shortfalls.
MIPC's stand-alone credit profile, which S&P currently assesses at 'BB-', reflects decreasing demand for heat in its service area, the company's lack of transparency and uncertain financial policy because of its ongoing consolidation of heat-distribution assets, and its sizable investment program. Other rating constraints include a politicized and therefore somewhat unpredictable tariff regime and the transitional nature of the Russian economy.
These weaknesses are mitigated by strong ongoing support from the city's government, MIPC's dominant position as the city's district heating utility, its diversified customer base, the relatively high wealth and economic diversification in its service area, a fairly modern asset base, and moderate debt leverage (pro forma the recent acquisitions of companies that own the heat assets it operates), the statement says.
S&P aims to resolve the CreditWatch placement within the next two months, after it has reviewed the company's refinancing plans, its borrowing and financial policies for 2010-2011, and after discussing with the Moscow city government about how the city might support MIPC's liquidity.
"We might lower the ratings by more than one notch if there is insufficient clarity on how MIPC will cover its short-term funding needs and on MIPC's plans to cover its medium- and long-term funding needs," Gorin said.