/raid1/www/Hosts/bankrupt/TCREUR_Public/220308.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
E U R O P E
Tuesday, March 8, 2022, Vol. 23, No. 42
Headlines
B E L A R U S
BELARUS: S&P Cuts Sovereign Credit Ratings to 'CCC', On Watch Neg.
I R E L A N D
NORTH WESTERLY V: Fitch Affirms 'B-' Rating on Class F-R Notes
SEGOVIA EUROPEAN 3-2017: S&P Assigns B- Rating on F-R Notes
M O N T E N E G R O
MONTENEGRO: S&P Affirms 'B/B' Sovereign Credit Ratings
N E T H E R L A N D S
METINVEST BV: S&P Lowers LongTerm Issuer Credit Rating to 'B-'
VEON LTD: Fitch Lowers LongTerm IDR to 'B+', Outlook Stable
R U S S I A
INTERNATIONAL BANK: Fitch Lowers LT IDR to 'BB+', On Watch Neg.
INTERSTATE BANK: Fitch Lowers LongTerm IDR to 'CCC+'
[*] Fitch Cuts Foreign Curr. IDRs of 20 Russian Gov't. Units to B
[*] Fitch Cuts IDRs of 5 Russian Non-Bank Fin'l. Entities to 'B'
[*] Fitch Lowers Foreign Cureency IDRs of 6 Russian GREs to 'B'
[*] Fitch Lowers Ratings on 3 Russian Port & Airport Operators
[*] RUSSIA: Gov't, Cos Allowed to Pay Foreign Creditors in Rubles
U N I T E D K I N G D O M
AMIGO LOANS: To Present Scheme of Arrangement in Court Today
GFG ALLIANCE: HMRC Withdraws Winding-Up Petitions After New Deal
GREAT GEORGE: Enters Administration Following Court Hearing
STANLINGTON NO. 2: S&P Assigns Prelim. 'BB' Rating on Cl. F Notes
STRUCTURED INVESTMENT 1: S&P Lowers Rating on Repack Notes to BB+p
- - - - -
=============
B E L A R U S
=============
BELARUS: S&P Cuts Sovereign Credit Ratings to 'CCC', On Watch Neg.
------------------------------------------------------------------
S&P Global Ratings, on March 4, 2022, lowered its long-term foreign
and local currency sovereign credit ratings on Belarus to 'CCC'
from 'B'. At the same time, S&P lowered the short-term ratings to
'C' from 'B'. In addition, it placed all these ratings on
CreditWatch with negative implications. S&P also revised downward
the Transfer & Convertibility assessment to 'CCC'.
As a "sovereign rating" (as defined in EU CRA Regulation 1060/2009
"EU CRA Regulation"), the ratings on Belarus are subject to certain
publication restrictions set out in Art 8a of the EU CRA
Regulation, including publication in accordance with a
pre-established calendar. Under the EU CRA Regulation, deviations
from the announced calendar are allowed only in limited
circumstances and must be accompanied by a detailed explanation of
the reasons for the deviation. In this case, the reason for the
deviation is the significant economic sanctions on Belarus due to
its involvement in the military conflict in Ukraine, which Russia
started on Feb. 24. The next scheduled publication on the sovereign
ratings on Belarus will be on March 18, 2022.
Credit Watch
S&P said, "We placed the ratings on CreditWatch negative to
indicate that we could lower them further over the next few weeks.
We expect to resolve the CreditWatch placement once we have more
clarity on the impact of the sanctions as well as the willingness
of the Belarusian government to honor its debt obligations in full
and on time."
Rationale
The rating actions reflect what we view as mounting economic,
balance-of-payments, and financial stability risks following the
imposition of strong international sanctions on Belarus, which stem
from its involvement in Russia's military intervention against
Ukraine. The extent of the economic damage to Belarus is difficult
to quantify, but we expect it to be very significant.
According to independent reports, Belarus has been supporting
Russia by allowing it to use Belarusian territory as a staging post
and to fire ballistic missiles against Ukraine. Belarus' political
institutions are very weak, with power remaining in the hands of
Mr. Lukashenko following the disputed presidential election in
August 2020. The results of this election were not recognized by
the EU and several other countries due to widely reported electoral
violations. In S&P's view, over the last year and a half this has
made Belarus even more dependent on Russia, likely effectively
forcing Mr. Lukashenko to accept Russia's demands for the
aforementioned military assistance to remain in office.
In response to Belarus role in the ongoing conflict, the EU, U.S.,
and U.K., among others, implemented unprecedented financial and
economic sanctions on Belarus. These include measures against two
Belarusian commercial banks: Bank Dabrabyt and Belinvestbank. Two
other banks--BelVeb and Sberbank--are also affected, as they are
subsidiaries of Russian parent banks that were sanctioned.
On March 2, 2022, the EU approved an additional package of
sanctions that target a diverse range of sectors of the Belarusian
economy, including wood, cement, and iron. Oil products and
fertilizer exports had already been restricted in the aftermath of
the disputed 2020 presidential elections, but there were important
exemptions that allowed, for example, the most important fertilizer
exports to continue or be re-routed via third countries. The EU has
now announced that full bans will take effect, which S&P believes
could bring parts of this trade to a standstill.
Historically, Russia's willingness to extend financial support to
Belarus has been one of the key factors supporting the sovereign
ratings on Belarus. Specifically, Russia has provided a number of
subsidies to Belarus, including offering favorable hydrocarbon
prices, refinancing maturing debt, and extending additional credit
lines. In our view, such support could be increasingly questionable
given the scale of financial market volatility and economic
pressures on Russia itself. S&P believes this could have direct
negative implications for Belarus' ability to service its
commercial debt.
Over the last few days, there have been multiple reports of
Belarus' increased involvement in the Ukraine conflict. In S&P's
view, this could lead to additional, even more severe, sanctions.
It remains possible that more substantial restrictions will be
placed on Belarus' domestic financial sector, including cutting off
some banks from SWIFT (which has already happened to Russia). That
would increase financial stability risk even further, potentially
leading to increased deposit withdrawals and households converting
to foreign currency.
Overall, S&P now considers it likely that absent an unforeseen
positive development, Belarus will default on its commercial debt
over the next 12 months. Apart from financial considerations, S&P
also believes Belarus could become unwilling to honor its
obligations to retaliate against the sanctions.
Environmental, social, and governance (ESG) credit factors for this
action:
-- Governance factors
In accordance with S&P's relevant policies and procedures, the
Rating Committee was composed of analysts that are qualified to
vote in the committee, with sufficient experience to convey the
appropriate level of knowledge and understanding of the methodology
applicable. At the onset of the committee, the chair confirmed that
the information provided to the Rating Committee by the primary
analyst had been distributed in a timely manner and was sufficient
for Committee members to make an informed decision.
After the primary analyst gave opening remarks and explained the
recommendation, the Committee discussed key rating factors and
critical issues in accordance with the relevant criteria.
Qualitative and quantitative risk factors were considered and
discussed, looking at track-record and forecasts.
The committee's assessment of the key rating factors is reflected
in the Ratings Score Snapshot above.
The chair ensured every voting member was given the opportunity to
articulate his/her opinion. The chair or designee reviewed the
draft report to ensure consistency with the Committee decision. The
views and the decision of the rating committee are summarized in
the above rationale and outlook. The weighting of all rating
factors is described in the methodology used in this rating
action.
Ratings List
DOWNGRADED
TO FROM
BELARUS
Transfer & Convertibility Assessment CCC B
DOWNGRADED; CREDITWATCH/OUTLOOK ACTION
TO FROM
BELARUS
Sovereign Credit Rating CCC/Watch Neg/C B/Negative/B
BELARUS
Senior Unsecured CCC/Watch Neg B
=============
I R E L A N D
=============
NORTH WESTERLY V: Fitch Affirms 'B-' Rating on Class F-R Notes
--------------------------------------------------------------
Fitch Ratings has upgraded North Westerly V Leveraged Loan
Strategies CLO DAC's class D-R and E-R notes and affirmed the class
X to C-R and F-R notes. The class B-1-R through F-R notes have been
removed from Under Criteria Observation (UCO) and all notes are on
Stable Outlook.
DEBT RATING PRIOR
---- ------ -----
North Westerly V Leveraged Loan Strategies CLO DAC
A-R XS2367140048 LT AAAsf Affirmed AAAsf
B-1-R XS2367140394 LT AAsf Affirmed AAsf
B-2-R XS2367140550 LT AAsf Affirmed AAsf
C-R XS2367140717 LT A+sf Affirmed A+sf
D-R XS2367140980 LT BBBsf Upgrade BBB-sf
E-R XS2367141103 LT BBsf Upgrade BB-sf
F-R XS2367141368 LT B-sf Affirmed B-sf
X XS2367139891 LT AAAsf Affirmed AAAsf
TRANSACTION SUMMARY
North Westerly V Leveraged Loan Strategies CLO DAC is a cash flow
collateralised loan obligation (CLO) mostly comprising senior
secured obligations. The transaction is actively managed by NIBC
Bank N.V. and will exit its reinvestment period in January 2026.
KEY RATING DRIVERS
CLO Criteria Update: The rating actions mainly reflect the impact
of Fitch's recently updated CLOs and Corporate CDOs Rating Criteria
and the shorter risk horizon incorporated in Fitch's stressed
portfolio analysis. The analysis considered modelling results for
the current and stressed portfolios based on the 10 January 2022
trustee report. The stressed portfolio analysis is based on Fitch's
collateral quality matrix specified in the transaction
documentation and underpins the model-implied ratings (MIRs) in
this review.
The transaction has four matrices, based on a 10% and 0% fixed-rate
obligation limits and top 10 obligor concentration limit of 15% and
20%. Fitch analysed the matrix specifying the 15% top 10 obligor
concentration limit, as the transaction currently has a 13.34%
concentration. When analysing the matrix, Fitch applied a haircut
of 1.5% to the weighted average recovery rate as the calculation in
the transaction documentation is not in line with the latest CLO
criteria.
The weighted average life (WAL) used for the transaction's stressed
portfolio and matrices analysis is reduced to 7.1 years after a
one-year reduction from the WAL covenant. This is to account for
structural and reinvestment conditions after the reinvestment
period, including the satisfaction of the coverage tests and
Fitch's 'CCC' limit tests, together with a progressively decreasing
WAL covenant. In the agency's opinion, these conditions reduce the
effective risk horizon of the portfolio during stress periods.
The Stable Outlooks on all notes reflect Fitch's expectation of
sufficient credit protection to withstand potential deterioration
in the credit quality of the portfolio in stress scenarios that are
commensurate with the ratings. The transaction is still in its
reinvestment period, so no deleveraging is expected.
MIR Deviation: The class B1-R, B-2-R, D-R, and E-R notes' ratings
are one notch below the MIR. The deviation reflects the remaining
reinvestment period until January 2026, during which the portfolio
could change significantly, due to reinvestment or negative
portfolio migration.
Stable Asset Performance: The transaction metrics indicate a stable
asset performance. The transaction is currently 0.11% above par. It
is passing all collateral quality tests, all portfolio profile
tests and all coverage tests. Exposure to assets with a
Fitch-derived rating of 'CCC+' and below is 0.40% according to the
latest trustee report versus a limit of 7.50%.
'B' Portfolio: Fitch assesses the average credit quality of the
transaction's underlying obligors in the 'B' category. The weighted
average rating factor (WARF) as calculated by the trustee was
32.85, which is below the maximum covenant of 34. The WARF, as
calculated by Fitch under the updated criteria, was 24.33.
High Recovery Expectations: Senior secured obligations comprise
96.6% of the portfolio. Fitch views the recovery prospects for
these assets as more favourable than for second-lien, unsecured and
mezzanine assets.
Diversified Portfolio: The portfolio is well-diversified across
obligors, countries and industries. The top 10 obligor
concentration is 13.34%, and no obligor represents more than 2.04%
of the portfolio balance.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Downgrades may occur if build-up of the notes' credit
enhancement does not compensate for a larger loss expectation
than initially assumed due to unexpectedly high levels of
defaults and portfolio deterioration.
-- A 25% increase of the mean rating default rate (RDR) across
all ratings and a 25% decrease of the rating recovery rate
(RRR) across all ratings would result in downgrades of up to
four notches across the structure.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Except for the tranches already at the highest 'AAAsf' rating,
upgrades may occur in the event of better-than-expected
portfolio credit quality and deal performance, leading to
higher credit enhancement and excess spread available to cover
for losses in the remaining portfolio.
-- A 25% reduction of the mean RDR across all ratings and a 25%
increase in the RRR across all ratings would result in an
upgrade of no more than five notches across the structure,
apart from the class X and A-R notes, which are already at the
highest rating on Fitch's scale and cannot be upgraded.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
DATA ADEQUACY
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset pool
and the transaction. Fitch has not reviewed the results of any
third-party assessment of the asset portfolio information or
conducted a review of origination files as part of its monitoring.
The majority of the underlying assets or risk-presenting entities
have ratings or credit opinions from Fitch and/or other nationally
recognised statistical rating organisations and/or European
Securities and Markets Authority-registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information or information on the risk-presenting entities.
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
SEGOVIA EUROPEAN 3-2017: S&P Assigns B- Rating on F-R Notes
-----------------------------------------------------------
S&P Global Ratings assigned its credit ratings to Segovia European
CLO 3-2017 DAC's class A-R, B-1-R, B-2-R, C-R, D-R, E-R, and F-R
reset notes. The existing transaction has unrated subordinated
notes outstanding that are unaffected. As part of this reset, the
issuer has issued additional unrated subordinated notes and unrated
class Z notes.
The transaction is a reset of the existing Segovia European CLO
3-2017, which closed in November 2020. The issuance proceeds of the
refinancing notes were used to redeem the refinanced notes and pay
fees and expenses incurred in connection with the reset.
Under the transaction documents, the rated notes will pay quarterly
interest unless there is a frequency switch event. Following this,
the notes will switch to semiannual payment.
The portfolio's reinvestment period will end 4.4 years after
closing, and the portfolio's non-call period will be 1.4 years
after closing.
The ratings assigned to the notes reflect S&P's assessment of:
-- The diversified collateral pool, which primarily comprises
broadly syndicated speculative-grade senior secured term loans and
bonds that are governed by collateral quality tests.
-- The credit enhancement provided through the subordination of
cash flows, excess spread, and overcollateralization.
-- The collateral manager's experienced team, which can affect the
performance of the rated notes through collateral selection,
ongoing portfolio management, and trading.
Portfolio Benchmarks
CURRENT
S&P Global Ratings weighted-average rating factor 2,895.78
Default rate dispersion 559.40
Weighted-average life (years) 4.56
Obligor diversity measure 147.63
Industry diversity measure 22.66
Regional diversity measure 1.35
Transaction Key Metrics
CURRENT
Total par amount (mil. EUR) 400.00
Defaulted assets (mil. EUR) 0.00
Number of obligors 179
Portfolio weighted-average
rating derived from our CDO evaluator B
'CCC' category rated assets (%) 5.70
'AAA' reference portfolio weighted-average recovery (%) 36.36
Actual weighted-average spread net of floor (%) 3.84
Actual weighted-average coupon (%) 4.77
Rating rationale
S&P said, "Our ratings reflect our assessment of the collateral
portfolio's credit quality, which has a weighted-average rating of
'B'. We consider that the portfolio primarily comprises broadly
syndicated speculative-grade senior secured term loans and senior
secured bonds. Therefore, we conducted our credit and cash flow
analysis by applying our criteria for corporate cash flow CDOs.
"In our cash flow analysis, we used the EUR400 million performing
amount, the covenanted weighted-average spread of 3.75%, the
covenanted weighted-average coupon of 4.50%, and the actual
targeted portfolio's weighted-average recovery rates for all rated
notes. We applied various cash flow stress scenarios, using four
different default patterns, in conjunction with different interest
rate stress scenarios for each liability rating category.
"The transaction's documented counterparty replacement and remedy
mechanisms adequately mitigate its exposure to counterparty risk
under our current counterparty criteria. Although the replacement
framework in the swap documentation is in line with an earlier
version of our counterparty criteria, we consider the structural
features in the transaction to be sufficient to mitigate any
potential shortfalls in collateral posting.
"Following the application of our structured finance sovereign risk
criteria, we consider the transaction's exposure to country risk to
be limited at the assigned ratings, as the exposure to individual
sovereigns does not exceed the diversification thresholds outlined
in our criteria.
"The transaction's legal structure is bankruptcy remote, in line
with our legal criteria.
"Our credit and cash flow analysis indicates that the available
credit enhancement for the class B-1-R to E-R notes could withstand
stresses commensurate with higher ratings than those we have
assigned. However, as the CLO is still in its reinvestment phase,
during which the transaction's credit risk profile could
deteriorate, we have capped our assigned ratings on the notes. The
class A-R and F-R notes can withstand stresses commensurate with
the assigned ratings.
"Following our analysis of the credit, cash flow, counterparty,
operational, and legal risks, we believe that our ratings are
commensurate with the available credit enhancement for the class
A-R, B-1-R, B-2-R, C-R, D-R, E-R, and F-R notes.
"In addition to our standard analysis, to provide an indication of
how rising pressures among speculative-grade corporates could
affect our ratings on European CLO transactions, we have also
included the sensitivity of the ratings on the class A-R to E-R
notes to five of the 10 hypothetical scenarios we looked at in our
publication "How Credit Distress Due To COVID-19 Could Affect
European CLO Ratings," published on April 2, 2020. The results
shown in the chart below are based on the covenanted
weighted-average spread, coupon, and recoveries.
"As our ratings analysis makes additional considerations before
assigning ratings in the 'CCC' category, and we would assign a 'B-'
rating if the criteria for assigning a 'CCC' category rating are
not met, we have not included the above scenario analysis results
for the class F-R notes."
Environmental, social, and governance (ESG) factors
S&P said, "We regard the exposure to ESG credit factors in the
transaction as being broadly in line with our benchmark for the
sector. Primarily due to the diversity of the assets within CLOs,
the exposure to environmental credit factors is viewed as below
average, social credit factors are below average, and governance
credit factors are average. For this transaction, the documents
prohibit assets from being related to the following industries:
weapons of mass destruction; illegal drugs or narcotics;
pornographic materials or content; payday lending; electrical
utility where carbon intensity is greater than 100gCO2/kWh;
non-recycling of unregulated hazardous chemicals, non-biological
pesticides and hazardous wastes, or ozone-depleting substances;
trades in endangered or protected wildlife; 1% of revenues from
thermal coal or coal based power generation, oil sands or
extraction of fossil fuels from unconventional sources; less than
40% of its revenue from natural gas or renewables or reserves of
less than 20% deriving from natural gas; more than 10% of its
revenue is derived from weapons or tailor-made components and
manufacturing of civilian firearms; more than 5% of revenues from
the production, sale or manufacture of tobacco or tobacco products;
more than 50% of its revenue from trade in, production or marketing
of opioid manufacturing and distribution; more than 50% of its
revenue from the production of non-certified palm oil; and more
than 50% of its revenue from the operation, management or provision
of services to private prisons.
"Accordingly, since the exclusion of assets from these industries
does not result in material differences between the transaction and
our ESG benchmark for the sector, no specific adjustments have been
made in our rating analysis to account for any ESG-related risks or
opportunities."
Ratings List
CLASS RATING AMOUNT SUB (%) INTEREST RATE*
(MIL. EUR)
A-R AAA (sf) 248.00 38.00 3/6-month EURIBOR
plus 0.95%
B-1-R AA (sf) 30.00 28.00 3/6-month EURIBOR
plus 1.75%
B-2-R AA (sf) 10.00 28.00 2.30%
C-R A (sf) 28.00 21.00 3/6-month EURIBOR
plus 2.75%
D-R BBB- (sf) 26.00 14.50 3/6-month EURIBOR
plus 4.00%
E-R BB- (sf) 20.00 9.50 3/6-month EURIBOR
plus 6.36%
F-R B- (sf) 11.00 6.75 3/6-month EURIBOR
plus 9.03%
Z-1 NR 0.10 N/A N/A
Z-2 NR 5.00 N/A N/A
Z-3 NR 0.10 N/A N/A
Sub NR 55.70 N/A N/A
*The payment frequency switches to semiannual and the index
switches to six-month EURIBOR when a frequency switch event occurs.
EURIBOR--Euro Interbank Offered Rate.
NR--Not rated.
N/A--Not applicable.
===================
M O N T E N E G R O
===================
MONTENEGRO: S&P Affirms 'B/B' Sovereign Credit Ratings
------------------------------------------------------
S&P Global Ratings, on March 4, 2022, affirmed its 'B/B' long- and
short-term foreign and local currency sovereign credit ratings on
Montenegro. The outlook is stable.
Outlook
The stable outlook reflects S&P's view that Montenegro's economic
growth will remain solid and support a gradual consolidation of
public finances. S&P expects economic activity in Montenegro will
stay largely unaffected by its political uncertainty.
Upside scenario
S&P could raise its rating on Montenegro in case of a consistently
strong economic growth and faster-than-expected budgetary
consolidation. In this scenario, S&P would expect the net
government debt as a share of GDP to chart a clear trajectory to
below 60% of GDP, supported by recurring primary surpluses.
Downside scenario
S&P could lower the ratings if Montenegro's economic growth proved
materially weaker than it forecasts. Pressure could also emerge if
the budgetary position deviates significantly and negatively from
our forecast. This could, for example, occur if the government were
unable to control spending over the medium term, if execution of
key fiscal reforms resulted in wider budgetary imbalances, or if
authorities undertake large additional debt-financed projects.
Rationale
S&P said, "Our ratings on Montenegro reflect the country's
developing institutional arrangements together with the
government's relatively sizable government debt, monetary policy
constraints, and an external position that renders the sovereign
vulnerable to external shocks. The ratings also take into account
the investible and open nature of the economy and our expectation
that recurring and sizable foreign direct investment (FDI) inflows
will continue give rise to imports and increase the country's
current account deficit."
Institutional and economic profile: Montenegro's economic
performance will likely again be supported by the rebounding
tourism activity
-- S&P estimates that Montenegro's GDP expanded by 13% in 2021,
underpinned by a strong pick-up in tourism.
-- S&P expects tourism will reach pre-pandemic levels this summer,
supporting growth of 5.5% for the full year.
-- The recent collapse of the coalition government raises
uncertainty and poses questions on economic and budgetary reform.
Montenegro's tourism-dependent economy bounced back strongly in
2021 after being hit hard by the pandemic in 2020 on the back of a
strong revival in tourism that proved resilient to recurring
COVID-19 waves over the year. In particular, Montenegro attracted a
significant number of regional tourists. S&P estimates that real
GDP expanded by 13% in 2021, largely restoring the 15.3% decline
recorded in 2020.
S&P said, "We expect the economy will expand by 5.5% in 2022 and
4.5% in 2023 on the back of a continued improvement in tourism, in
tandem with strengthened public and private demand and a
continuation of investment, predominantly related to real estate
and the utility sector. We understand that there is a significant
number of advance bookings for the upcoming summer season. That
said, geopolitical tensions following Russia's military
intervention against Ukraine could dampen Montenegro's tourism this
summer. In addition, low immunization levels constitute further
risk. As of Feb. 22, 2022, 45% of Montenegro's population was fully
vaccinated against COVID-19, compared with the EU average of 72%.
"Despite tourism being severely hit in the pandemic, we believe the
Montenegrin economy has maintained its investible nature. We
forecast FDI inflows will remain solid across our forecast horizon,
with inward FDI at about 10% of GDP annually--supporting several
ongoing hospitality-related projects alongside investment in the
energy transition to solar and wind power generation. That said,
following the international sanctions imposed on Russia, we note
the risk of lower investment inflows from Russia, which we estimate
contributed about 20% of inward FDI to Montenegro in 2021. Other
than that, we anticipate that remittances, which remained
uninterrupted at about 8% of GDP in 2020 and 2021, will continue to
support the purchasing power of Montenegrin households.
"While the tourism sector is the key impetus behind Montenegro's
economic recovery, we observe an asymmetry in the sectoral rebound
that adds fragility to the near-term growth context. In particular,
the pandemic has increased the structural unemployment level, which
together with low labor market participation remains a key
structural impediment to Montenegro's longer term growth prospects.
We estimate unemployment of 19% at year-end 2021 and expect it will
only gradually moderate over the coming years as government reforms
progress.
"In February 2022, Montenegro's technocrat-led coalition
government, which held diverging views on a range of policy
priorities, collapsed following a vote of no confidence. This put
an end to its less than 18 months in office. Its entry into office
had marked the end of a three-decade-long rule of the Democratic
Party of Socialists. We consider that the orderly power transfer in
the aftermath of the 2020 parliamentary elections represents an
important precedent. While discussions on the formation of a new
government are ongoing, we believe the fragmented and contentious
political landscape will provide for a substantial degree of
political uncertainty for the remainder of this legislative
period."
Montenegro's policy headroom to offset shocks is constrained by its
fiscal position and its limited monetary flexibility (having
unilaterally adopted the euro in 2002). In particular, its fiscal
space remains constrained by the debt contracted for the
construction of a highway to link the Port of Bar with the Serbian
border. The cost of the first section of highway added about 15% of
GDP to debt over the past three years. This section is scheduled to
become operational in first-quarter 2022, after numerous delays and
cost overruns. S&P understands that government remains adamant in
pursuing the subsequent sections of the highway, but consider the
timeframe unclear given the current political environment.
The strong economic recovery supported a significant reduction in
Montenegro's public finances in 2021. In late 2021, the ruling
coalition introduced an ambitious economic and fiscal reform
program, Europe Now, under which it introduced a string of tax
measures that aim to increase the standard of living, improve the
investing environment, and reduce the size of the grey economy. It
also almost doubled the monthly minimum net wage to EUR450 from
EUR250 as of January 2022. While the currently unclear political
situation clouds the predictability of reform implementation, S&P
recognizes broad political agreement around the chief elements of
the Europe Now program and believe the efforts will proceed, albeit
likely at a more subdued pace.
S&P said, "In our view, overall, Montenegro's institutions can be
characterized as developing. Also, instances of corruption and
irregular adherence to rule of law have been reported, and we
believe they will continue to hamper the business environment.
Montenegro's institutional setting benefits from the country's
status as an EU candidate. Reforms implemented as part of the
accession negotiations have the potential to strengthen the
country's policy frameworks and align Montenegro with the EU's
Acquis Communautaire. That said, we consider Montenegro's plan for
EU accession in 2025 optimistic. This is because we believe both
domestic developments and Euroscepticism among the existing member
states could hamper the process, since--under EU rules--member
states will ultimately have to unanimously approve Montenegro's
membership bid."
Flexibility and performance profile: Budget deficit to widen in
2022 due to the Europe Now budgetary measures, followed by a
gradual consolidation thereafter
-- S&P expects the general government deficit will widen to 6.0%
of GDP in 2022, from an estimated 2.3% in 2021, as front-loaded
spending under the Europe Now program weighs on public finances.
-- Nevertheless, substantial cash holdings alleviate short-term
refinancing risks.
-- Montenegro has a fragile external position, with persisting
high current account deficits and strong reliance on external
financing availability.
S&P said, "We estimate that Montenegro's general government deficit
reached 2.3% of GDP in 2021 due to a strong pickup in government
revenue on the back of economic recovery, alongside a decline in
discretionary spending. Moreover, the 2021 decline in the budget
deficit reflects that budget execution was on a temporary financing
basis for the first half-year, since persisting disagreements in
government delayed its adoption. This situation curbed government
spending initiatives over the first half of the year. Government
revenue, on the other hand, surged to an estimated 45% of GDP,
surpassing even the 2019 level in nominal terms, due to an
improvement in tax collections, especially value-added tax, which
accounts for nearly 60% of total tax revenue and benefitted from a
pickup in tourism. Excluding interest payments, we estimate that
Montenegro recorded a primary surplus of 0.4% of estimated GDP in
2021."
In December 2021, the Montenegrin government adopted a package of
economic and budgetary measures titled Europe Now to incentivize
more people to join the formal economy, support economic growth,
and reverse emigration trends. The reform program includes several
front-loaded expenditure items among others an increase of the
minimum wage, in addition to a host of tax-related measures and
abolishment of the obligation to pay contributions toward
compulsory health insurance. In S&P's view, the unclear political
situation has amplified the challenges related to the program's
implementation.
S&P said, "We expect that the Europe Now program will weigh on
Montenegro's budget balance in 2022 and estimate that the budget
deficit will widen to 6% of GDP, compared with the government's
target of 5%. After the rationalization achieved in 2021, the
government will increase its current spending due to a higher wage
bill, social protection transfers, and increase in pension
spending. We forecast the deficit will gradually narrow toward 3%
of GDP in 2024, supported by economic growth and the government's
consolidation efforts."
S&P forecasts Montenegro's net general government debt will stand
at 69.3% of GDP in 2022, at about the same level as 2021, before
gradually declining to 65% by the end of 2025. As the government
increasingly relies on net borrowing from the rest of the world,
the sustainability of Montenegro's external financing is
increasingly a function of the public sector's access to external
capital markets. A sudden loss of access to foreign financing
(which we currently do not project) would not only create a fiscal
cliff for public finances, but also likely drain foreign reserves
and tighten overall financial conditions in a euroized economy that
lacks a lender of last resort.
Montenegro's government debt is primarily owed to foreign
creditors, with only a limited number of domestic securities
issued. Associated risks are partially mitigated by the fact that
about 40% of government external debt is to official lenders under
generally favorable conditions. However, the debt-redemption
profile remains rather uneven, which is a function of the small
size of the government budget and Montenegro's economy. Authorities
issue benchmark-size instruments that are comparatively large as a
percentage of GDP, meaning repayments are high in years with
Eurobond maturities.
S&P considers that Montenegro's favorable relationship with
international financial institutions and its currently ample
liquidity will allow it to secure financing in the context of its
financing needs. The proceeds of a EUR750 million Eurobond in
December 2020 went toward bullet maturities in March 2021 and left
a cash cushion at about 10% of GDP as of December 2021.
In July 2021, the Montenegrin government put in place a hedging
arrangement on its Chinese highway loan, which represents about 15%
of the government's debt stock, effectively reducing currency risks
and the interest rate to 0.88% in euros from 2.00% in U.S. dollars.
Also, despite higher leverage, Montenegro's interest expenditures
will remain more contained, averaging about 5.8% of government
revenue through 2025.
Montenegro's external accounts have benefitted from a strong
rebound in tourism, enabling it to reign in its current account
deficit quite significantly last year. Service surplus has boomed,
thanks to a rapid pickup in travel related revenue. This, coupled
with resilient remittance inflows as well as a surplus on the
primary balance have helped the country improve its current account
receipts. S&P said, "We estimate the current account deficit to
have narrowed to 13.5% of GDP in 2021, down by about 12 percentage
points compared to 2020. We also forecast tourism sector to recover
fully and reach or even slightly exceed 2019 levels in 2022, after
reaching nearly 60% of pre-pandemic levels in 2021."
However, the persistence of current account deficits and a large
net external liability position keeps Montenegro vulnerable to
balance-of-payment risks. Historically, the economy has relied
substantially on net inflows of FDI into tourism and associated
real estate. S&P said, "We observe that FDI flows showed resilience
in 2021, with inward FDI at about 10% of GDP, supporting ongoing
investments, particularly within the utility sector. We see
significant risks to FDI flowing in particularly from Russia this
year, in the light of international sanctions. In our base-case
scenario, we expect FDI to be the key driver in Montenegro's import
bill, supporting the resumption of several ongoing hospitality
projects. We expect FDI will average 10% of GDP annually in
2022-2025, broadly in line with historical trends, fueling rising
imports. Nonetheless, we have improved our forecast of tourism
receipts and estimate that the country's current account deficit
will now average 13.7% of GDP over 2022-2025."
Montenegro's unilateral adoption of the euro prevents its central
bank from setting interest rates and controlling the money supply
and restricts its ability to act as a lender of last resort.
Although the central bank has some options to provide liquidity to
domestic banks, in S&'s view, its inability to create additional
liquidity in a stress scenario effectively prevents it from
fulfilling the function of lender of last resort.
Montenegro's banking system entered the pandemic in a relatively
strong position, with solid capital levels, nonperforming loans
(NPLs) at a low 5%, and ample liquidity. The central bank completed
an asset-quality review for all banks in the country and concluded
basis preliminary results that the financial system is stable. NPLs
have remained broadly stable but a rise is likely to be felt as
fiscal support and loan moratoria are phased out. The banking
system is dominated by subsidiaries of foreign banking groups,
which typically have financial positions exceeding those of solely
domestic banking groups. It is largely funded by domestic deposits,
providing some stability. In December 2020, the two-largest banks,
CKB and Podgoricka Banka, completed their anticipated merger, with
the combined entity now accounting for about 40% of sector assets.
In accordance with S&P's relevant policies and procedures, the
Rating Committee was composed of analysts that are qualified to
vote in the committee, with sufficient experience to convey the
appropriate level of knowledge and understanding of the methodology
applicable. At the onset of the committee, the chair confirmed that
the information provided to the Rating Committee by the primary
analyst had been distributed in a timely manner and was sufficient
for Committee members to make an informed decision.
After the primary analyst gave opening remarks and explained the
recommendation, the Committee discussed key rating factors and
critical issues in accordance with the relevant criteria.
Qualitative and quantitative risk factors were considered and
discussed, looking at track-record and forecasts.
The committee's assessment of the key rating factors is reflected
in the Ratings Score Snapshot above.
The chair ensured every voting member was given the opportunity to
articulate his/her opinion. The chair or designee reviewed the
draft report to ensure consistency with the Committee decision. The
views and the decision of the rating committee are summarized in
the above rationale and outlook. The weighting of all rating
factors is described in the methodology used in this rating
action.
Ratings List
RATINGS AFFIRMED
MONTENEGRO
Sovereign Credit Rating B/Stable/B
Transfer & Convertibility Assessment AAA
Senior Unsecured B
=====================
N E T H E R L A N D S
=====================
METINVEST BV: S&P Lowers LongTerm Issuer Credit Rating to 'B-'
--------------------------------------------------------------
S&P Global Ratings has taken negative rating actions on three
mining and metals producers with significant exposure to Ukraine
because of the operational and financial consequences of Russia's
military intervention in the country.
The rating actions include:
-- Ferrexpo PLC (B-/Watch Neg/B)
-- Interpipe Holdings PLC (B-/Watch Neg/--)
-- Metinvest B.V. (B-/Watch Neg/--)
Rationale
The recent developments in Ukraine could translate into very severe
disruptions to the operations of Ukraine-exposed commodities
producers. Russia's decision to launch a "military operation" on
Ukraine increases the risks of weaker growth and instability in
Ukraine, and could cause severe operational and business
interruptions to mining and metals corporates. The negative effects
of the unpredictable and unevenly matched military conflict are, at
this point, difficult to quantify, but will inevitably weigh on the
creditworthiness of the three Ukraine-exposed rated companies:
Ferrexpo, Interpipe, and Metinvest.
S&P foresees a wide range of potential operational risks, some of
which have started to materialize already. They explain, together
with rising economic risks, why S&P has also lowered its country
risk for Ukraine to very high, from high:
-- Key transportation infrastructure risks: Access to and use of
the country's main ports on the Black Sea and the Sea of
Azov--notably Mariupol and ports in the Odessa region--may be
interrupted for a prolonged period. This is even more important
because the three rated companies are largely exporters. Airports,
roads, and railway infrastructure may be severely affected. While
it is difficult to assess how long logistics disruptions could
persist, it is very likely that the impact on exporters will be
significant;
-- Difficulties relating to production/manufacturing facilities
and headquarters: The conflict could cause problems such as a lack
of personnel, because of acute safety risks, or a lack of
sufficient energy supply or raw materials; and
-- Heightened risk of cyberattacks, aiming to inflict damage on IT
operations.
S&P said, "We estimate that the liquidity position of all three
companies remains adequate.The three issuers have good cash
balances, supported by a policy to maintain a material proportion
of the cash abroad, and very limited debt maturities in the next 12
months. Still, we recognize that liquidity may come under pressure
if the companies are unable to generate sufficient cash flow from
their operations; if they experience large working capital swings
(for instance, if a large amount of any ongoing production cannot
be shipped outside the country and has to be stockpiled); or if
they cannot obtain committed facilities from banks where needed.
The domestic banking sector was already fragile before the crisis.
The low leverage and adequate liquidity of the three companies
explain why we are not further lowering the ratings to the 'CCC'
category at this stage."
Ultimately, geopolitical risks are now the main driver of
commodities producers' creditworthiness. At this stage, we believe
that uncertainty is too high for us to rate any Ukraine-exposed
commodities producer above the sovereign foreign currency rating.
In our view, the key risks now affecting these entities' credit
quality are geopolitical issues, which are outside companies'
control, and which may be only partially eased by specific
companies' individual strategies, such as market position,
financial metrics, and liquidity arrangements. In addition, the
majority of their cash-generating assets are in Ukraine. S&P has
little visibility on how long operations will be severely disrupted
and when exports can resume to normal levels. Therefore, it has
decided to cap the ratings of commodities producers in Ukraine at
the foreign currency sovereign rating, which captures the large
geopolitical risks the country, and by contagion commodities
producers, are exposed to.
Interpipe Holdings PLC (B-/Watch Neg/--)
S&P said, "We lowered our long-term issuer credit rating and issue
ratings on Interpipe to 'B-' from 'B' and placed them on
CreditWatch with negative implications. The downgrade primarily
reflects the increasing risks of operating in Ukraine amid the
ongoing armed conflict with Russia."
Interpipe is a Ukraine-based, vertically integrated, low-cost
manufacturer of steel pipes and railway wheels. The company
operates three divisions (steelmaking, pipes, and railway products)
that are run by separate management teams.
The company exports a substantial portion of its production. Based
on fiscal year ending Dec. 31, 2021, sales by volumes, Interpipe's
pipes sales split was: Ukraine 24%; Middle East and North Africa
(MENA) 22%; Americas 21%; Europe 19%; Commonwealth of Independent
States (CIS) 11%; and other 2%. Over the same period, its wheels
sales split was: Ukraine 33% (this figure was lower in previous
years before the Russian ban on imports of Ukraine wheels); CIS
36%; Europe 16%; MENA 6%; Americas 6%; and other 3%. Exposure to
Russia is very small, with about 2% of sales in pipes and nil in
wheels.
S&P said, "We see Interpipe's current liquidity position as
adequate, based on our estimate of the principal sources and uses
of cash in the next 12 months. The company had a cash balance of
$110 million as of Sept. 30, 2021, and we estimate a similar amount
at year-end 2021. It also has negligible debt maturities in the
coming 12 months--about $10 million due during fiscal 2022 under
the $43 million bank facilities, with the next material debt
maturity in 2026 when the $300 million bonds mature. We also
estimate that the company will have to make payments of several
tens of millions later in the year related to the
performance-sharing fees and securities. We understand that the
company typically keeps more than 50% of its cash outside Ukraine,
and even more during times of crisis like the current conflict.
However, Interpipe has no committed undrawn credit lines available
and could face difficulties in relying on the local bank sector
(given the current circumstances) if that was necessary."
CreditWatch
The CreditWatch placement indicates that S&P could lower its
ratings on Interpipe in the next 90 days to the 'CCC' category if
the armed conflict further affects the company's operational and
financial performance, notably its cash flow generation and
liquidity.
The magnitude of such a rating action will consider the nature of
the disruptions (temporary versus permanent) and the availability
of contingency programs, that could lessen the impact on their
respective performance. The rating action could span one- or
multiple-notch downgrades, depending on the severity of the
impact.
A further downgrade of the foreign currency sovereign rating on
Ukraine and of its T&C would exert pressure on Interpipe's ratings,
but not automatically lead to a downgrade, as long as the
continuity of business operations and liquidity continue to hold
up.
Ferrexpo PLC (B-/Watch Neg/B)
S&P placed its 'B-' long-term and 'B' short-term credit ratings on
Ferrexpo on CreditWatch with negative implications. The rating
action primarily reflects the increasing risks of operating in
Ukraine amid the armed conflict with Russia.
Ferrexpo is the third-largest exporter of iron ore pellets in the
world. In 2020, it shipped 11.9 million tons (mt), equivalent to
about 9% of the global market, after Vale S.A. (32.7 mt or 24%),
and LKAB AB (16.3 mt or 12%). Ferrexpo exports all its production,
with no exposure to Russia. China and Southeast Asia are the
company's biggest markets, accounting for 58% of export revenue,
while Central and Western Europe accounted for 30%. The remaining
12% was split between Northeast Asia, Turkey, the Middle East,
India, North America, and others. Exports are moved via rail or
through the port of Pivdennyi. Both routes are currently almost
fully suspended, leading the company to stockpile iron ore pellets
at its mining and processing site in central Ukraine (near Horishni
Plavni).
Governance issues have been a negative credit consideration in the
past two years, namely because of perceived weak governance
oversight related to past internal investigations. The company
recently started to rebuild investor confidence and a more positive
track record, with the appointment of new board members and a
permanent CEO. Although some risks have dissipated, S&P sees
potential for adverse developments arising from the ongoing legal
proceedings against the company's majority shareholder, Mr.
Zhevago.
S&P said, "We see the company's liquidity as adequate. After
repaying in full its only major debt instrument, the pre-export
finance facility ($257 million), the company has very little
reported debt outstanding (about $20 million-$25 million estimated
at year-end 2021), negligible debt maturities in the coming 12
months (about $1.6 million), and a cash balance that we estimate at
about $150 million-$200 million, also at year-end. We understand
that the company typically keeps more than 80% of its cash outside
Ukraine. However, the company had very few committed credit lines
available and could face difficulties in relying on the local bank
sector in the event of need. We could see liquidity weaken if
stockpiling were to continue because of export routes' suspensions,
leading to increasing working capital."
CreditWatch
S&P said, "The CreditWatch placement indicates that we could lower
our ratings on Ferrexpo in the next 90 days to the 'CCC' category
if the armed conflict further affects the company's operational and
financial performance, notably cash flow generation and
liquidity."
The magnitude of such a rating action will consider the nature of
the disruptions (temporary versus permanent) and the availability
of contingency programs, which could lessen the impact on their
respective performance. The rating action could span one- or
multiple-notch downgrades, depending on the severity of the
impact.
S&P said, "We could also lower the rating if new allegations arise
or investigations are initiated against Ferrexpo that would have a
material financial impact, reputational damage, or adverse
consequences for operations.
"A further downgrade of the foreign currency sovereign rating on
Ukraine and of the T&C would exert pressure on our ratings on
Ferrexpo, but not automatically lead to a downgrade, as long as
continuity of business operations and liquidity continues to
hold."
Metinvest B.V. (B-/Watch Neg/--)
S&P lowered its long-term credit issuer rating on Metinvest to 'B-'
from 'B+' and the issue rating on the company's senior unsecured
notes to 'B-' from 'B+' and placed them on CreditWatch with
negative implications. The downgrade primarily reflects the
increasing risks of operating in Ukraine amid the armed conflict
with Russia. Metinvest is a Netherlands-registered, vertically
integrated steel producer with the majority of production assets in
Ukraine. The company operates two segments:
-- Mining (50%-100% of EBITDA over the past three years):
Metinvest operates three iron ore pits in Ukraine and one joint
venture (Southern GOK). Iron ore concentrate production was about
31 mt in 2020, of which Metinvest sold about 63% to third parties.
It also owns a coking coal producer in the U.S. (United Coal) and a
coking coal producer in Ukraine (Pokrovske Coal), which have an
annual production capacity of 3 mt each; and
-- Metallurgical: Metinvest is a midsize steel producer and
operates three integrated steel mills in Ukraine that have a
combined crude steel capacity of about 12.8 mt. The company also
has a joint venture (Zaporizhstal) with a further capacity of 4 mt.
About 25% of the production is consumed domestically. In addition
to one re-rolling facility in Ukraine, the company also has two
re-rolling facilities in Italy, one in the U.K., and one in
Bulgaria, with a total capacity of about 2 mt, as well as four
domestic coke facilities.
Metinvest exports about 72% of its production, with 6% going to CIS
countries. In 2020, Europe accounted for 27% of sales, MENA 17%,
Southeast Asia 14%, and North America and others 7%. Metinvest uses
Mariupol port in the Sea of Azov for steel exports. Roughly 30% of
steel exports, mainly to neighboring counties, are routed via rail.
Iron ore, on the other hand, is shipped either via rail (mainly to
CEE clients), accounting for around 30% of sales volumes, or via
sea, mainly through the Yuzhny port. According to its latest press
release, the company has suspended operations in its steel plants,
Ilyich Steel and Azovstal, both of which are located inside the
city of Mariupol.
S&P views Metinvest's liquidity as adequate. The company had a
total of $2.2 billion of debt outstanding and $2 billion of cash on
the balance sheet as of Sept. 30, 2021. S&P understands that
Metinvest typically keeps most of its export revenue outside
Ukraine, transferring about 30% to cover expenses in Ukraine (when
there are no restrictions). Its next sizable debt maturity is in
April 2023, when $176 million of notes are maturing. Thereafter,
the company has bonds maturing in 2025, 2026, 2027, and 2029.
Access to committed facilities is limited and the company could
face difficulties in relying on the local bank sector if that were
necessary. Due to the suspension of Mariupol steel production, S&P
does not expect liquidity to weaken as a result of stockpiling."
Metinvest is a private company, with SCM the majority shareholder
(75%) and SMART the second-largest shareholder (25%). The ultimate
beneficiary of SCM is Mr. Rinat Akhmetov. SCM, through its
subsidiaries, engages in business areas that cover M&M, energy,
machine building, finances, media, real estate, rail, and freight
in Ukraine.
S&P said, "Our rating on Metinvest considers the SCM group's
creditworthiness, as well as the long-term foreign currency
sovereign rating and T&C assessment on Ukraine. Our view on both
has deteriorated and we no longer consider that Metinvest can be
rated above our sovereign rating on Ukraine, leading to the
downward revision of the issuer credit rating by two notches.
"Even if Metinvest has a substantial cash position and limited
maturities in the next 12 months, we no longer believe it is
appropriate to rate the company above the T&C and the sovereign
foreign currency, as we did until the start of Russia's recent
military intervention. We have limited visibility on the duration
and magnitude of the conflict or when the company will be able to
resume relatively normal operating conditions." Visibility on the
continuity of operations is essential to rate a company above its
sovereign, or above the T&C, even though the company is successful
in what it does and has prudent financial management. Geopolitical
risk, which is captured in the foreign currency sovereign rating,
is now the main driver of Metinvest's creditworthiness, and this
can only be partially eased by entity-specific strategies, such as
its market position, financial metrics, and liquidity
arrangements.
CreditWatch
S&P said, "The CreditWatch placement indicates that we could lower
our ratings on Metinvest in the next 90 days to the 'CCC' category
if the armed conflict further affects the company's operational and
financial performance, notably cash flow generation and
liquidity."
The magnitude of such a rating action will consider the nature of
the disruptions (temporary versus permanent) and the availability
of contingency programs, which could lessen the impact on their
respective performance. The rating action could span one- or
multiple-notch downgrades, depending on the severity of the
impact.
A further downgrade of the foreign currency sovereign rating on
Ukraine and of the T&C would exert pressure on Metinvest's ratings,
but not automatically lead to a downgrade, as long as continuity of
business operations and liquidity continues to hold.
Ratings List
RATINGS AFFIRMED; CREDITWATCH/OUTLOOK ACTION
TO FROM
FERREXPO PLC
Issuer Credit Rating B-/Watch Neg/B B-/Negative/B
INTERPIPE HOLDINGS PLC
Issuer Credit Rating B-/Watch Neg/-- B/Stable/--
METINVEST B.V.
Issuer Credit Rating B-/Watch Neg/-- B+/Stable/--
VEON LTD: Fitch Lowers LongTerm IDR to 'B+', Outlook Stable
-----------------------------------------------------------
Fitch Ratings has downgraded VEON Ltd.'s Long-Term Issuer Default
Rating (IDR) to 'B+' from 'BBB-' and senior unsecured rating to
'B+'/RR4 from 'BBB-'. The Outlook on the IDR is Stable.
The downgrade reflects the significant deterioration of the Russian
and Ukrainian operating environments accompanied by downgrades of
the Country Ceilings of Russia and Ukraine to 'B' and 'B-',
respectively. With limited access to cash in these countries, the
group's credit profile is primarily shaped by operations in other
markets. Russia and Ukraine generated 62% of the company-reported
2021 EBITDA. Analytical deconsolidation of operations in Russia and
Ukraine leads to a significant increase in leverage to around 4.6x
net debt/EBITDA.
KEY RATING DRIVERS
Difficult Russian, Ukrainian Operating Environments: Fitch
downgraded Russia's Country Ceiling to 'B' following its military
operations in Ukraine and the imposition of Western sanctions.
Ukraine's Country Ceiling was downgraded to 'B-'. Russia's rating
is on Rating Watch Negative, reflecting the potential for further
deterioration. However, any further downgrades of Country Ceilings
in Russia and Ukraine are unlikely to put additional pressure on
VEON's ratings under a deconsolidated approach.
Limited Access to Russian, Ukrainian Cash: The introduction of
currency controls in Russia limits VEON's access to cash generated
by its Russian operations. Fitch also views access to cash flows in
Ukraine as problematic. Fitch therefore starts taking into account
credit metrics that assume these operations are analytically
deconsolidated from the group's total. Fitch believes that VEON may
need to spend cash held at the headquarters level to meet its
obligations in roubles and hryvnias. The company is facing
accelerated repayment of a RUB30 billion loan from VTB bank by
end-March 2022 after this bank was put under sanctions.
Strong Geographic Diversification: VEON benefits from wide
geographic diversification across emerging markets, but with
limited contribution of operations in countries with strong
operating environments. Without Russia and Ukraine, Pakistan, with
its Country Ceiling of 'B-', accounted for almost half of the
remaining company-reported 2021 EBITDA, while the contribution of
Kazakhstan (Country Ceiling of BBB+) was slightly under a quarter.
Without Russia and Ukraine, the weighted average level of Country
Ceilings across VEON's asset portfolio is close to 'B+'.
Substantial FX Mismatch: VEON faces a significant mismatch between
its cash flows in local currencies and significant FX debt.
However, EBITDA generated in Kazakhstan, which has an
investment-grade Country Ceiling of 'BBB+', is sufficient to
comfortably cover the group's gross interest payments.
High Leverage: Assuming Russian and Ukrainian operations
deconsolidated, leverage is high at around 4.6x net debt/EBITDA.
Deleveraging is likely to be driven by organic growth across the
portfolio in the mid-to-high single digit per year range. The
divestment of Algerian operations, which is currently at the
implementation phase may also help reduce net debt and leverage.
The company's decision not to pay dividends for 2021 conserves cash
and contributes to deleveraging.
DERIVATION SUMMARY
VEON benefits from established market positions across its
operating footprint. It is the third-largest mobile operator in
Russia behind PJSC Mobile TeleSystems (MTS; B/RWN) and PJSC
MegaFon. It is the leading mobile operator in various high-growth
emerging markets. Axian Telecom (B+/Stable) and Liquid
Telecommunications Holdings Limited (B+/Stable) are peers that
operate in countries with weak operating environments. VEON has
more financial flexibility at its rating than these companies,
reflecting its stronger operating profile as a facilities-based
mobile operator with well-established or leading positions in all
of its markets.
VEON's ratings reflect the negative impact of low-scored operating
environments in the majority of the company's markets.
KEY ASSUMPTIONS
Fitch's key assumptions within its rating case for the issuer
include:
-- Mid-to-high single digit revenue and EBITDA growth across the
portfolio;
-- No dividends to be resumed until reported leverage drops
comfortably below the company-identified 2.4x leverage level
accompanied by reduced operating uncertainty in Russia and
Ukraine;
-- Cash at the headquarters level is applied to repay rouble bank
obligations in 2022;
-- Divestment proceeds from the sale of Algerian operations to be
received in 2022.
-- Fitch assumes VEON would not be subject to any sanctions
related to Russian military activities in Ukraine.
Key Recovery Rating Assumptions
-- The recovery analysis assumes that VEON would be considered a
going concern in bankruptcy and that the company would be
reorganised rather than liquidated
-- Fitch has assumed a 10% administrative claim
-- Post-restructuring going-concern EBITDA of USD775 million
reflective of moderate operating pressures. The post
restructuring EBITDA is approximately 15% below VEON's 2021
reported EBITDA excluding Russia and Ukraine.
-- For Fitch's recovery analysis, Fitch applies a distress
enterprise value multiple of 5.5x
-- Fitch assumes a fully drawn revolving credit facility (RCF) in
its recovery analyses as credit revolvers are tapped when
companies are in distress. Fitch assumes a full draw on VEON's
USD1,250 million RCF .
-- Fitch calculates the recovery prospects for senior unsecured
debt to be 51% but the Recovery Rating is limited to 'RR4'/50%
due to considerations of the countries VEON operates in.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Net debt/EBITDA leverage sustainably below 3.5x and, with
Russia and Ukraine deconsolidated, below 4x.
-- Pre-dividend free cash flow (FCF) margin of at least 3%.
-- Improved access to cash in Russia and Ukraine accompanied by
stronger operating environment in these countries.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Net debt/EBITDA leverage sustainably above 4.5x. With Russia
and Ukraine deconsolidated, leverage over 5x for a sustained
period would result in downward rating pressure.
-- Continued negative FCF generation combined with hindrances to
cash flow circulation across key subsidiaries leading to
weaker liquidity.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Non-Financial Corporate
issuers have a best-case rating upgrade scenario (defined as the
99th percentile of rating transitions, measured in a positive
direction) of three notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of four notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are
based on historical performance.
LIQUIDITY AND DEBT STRUCTURE
Strong Liquidity: VEON's liquidity as of end-February 2022 was
strong. The management reported that the company had around USD2.1
billion of cash of which USD1.5 billion was in FX at the
headquarter level held with large international banks. This was
supported by USD820 million of unutilised RCF, after tapping USD430
million for the repayment of a USD417 million Eurobond in March
2022. The company's liquidity is sufficient to meet its obligations
over the next 12 months and prepay all of its rouble and hryvnia
bank debt if necessary.
ISSUER PROFILE
VEON is a facilities-based mobile network operator with leading or
well-established competitive positions in most of its countries of
operations including Russia, Ukraine, Kazakhstan, Bangladesh and
Pakistan.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
===========
R U S S I A
===========
INTERNATIONAL BANK: Fitch Lowers LT IDR to 'BB+', On Watch Neg.
---------------------------------------------------------------
Fitch Ratings has downgraded International Bank for Economic
Co-operation's (IBEC) Long-Term Issuer Default Rating (IDR) to
'BB+' from 'BBB'. The ratings have been placed on Rating Watch
Negative (RWN). IBEC's short-term rating has been downgraded to 'B'
from 'F2'.
KEY RATING DRIVERS
Macro Financial Shock: The downgrade reflects the downward revision
of solvency and liquidity to 'bbb+' (from 'a-' previously) due to
the macro financial shocks resulting from international sanctions
in response to Russia's military invasion of Ukraine. Fitch has
also revised its assessment of IBEC's business environment so that
it now translates into a three-notch downward adjustment to
solvency and liquidity (from two previously), to 'bb+'.
The RWN reflects the high degree of volatility in international
relations, including the potential for further sanctions tightening
and uncertainty over Russia's policy response, and the impact it
may have on the bank's key solvency metrics.
Supranational Status Supports Rating: IBEC's rating, which is four
notches higher than that of the Russian sovereign, benefits from
the bank's supranational status. Fitch expects the bank will remain
exempt from Western sanctions against Russian banks and corporates
as well as from Russian capital controls. The agency also expects
the bank to continue to be able to proceed with cross-border
transactions including via its EU-based correspondent banks.
Exposure to Russia Affects Asset Quality: Russian counterparts
accounted for 24% of IBEC's loans and 21% of its treasury assets as
of end-2021. In Fitch's view, the macro financial shock in Russia
will significantly affect the credit quality of these exposures, as
illustrated by the recent downgrade of the Russian sovereign to
'B'/RWN (from 'BBB'). Fitch expects the average rating of IBEC's
loan portfolio to weaken to 'B'. The share of non-performing loans
(NPLs), which stood at 2% at end-2021, could significantly exceed
Fitch's 'high risk' threshold of 6%, although the fact that loans
to Russian entities are denominated in local currency is a
mitigating factor.
Capitalisation Set to Decline: At end-2021, the bank's
equity-to-adjusted-assets ratio of 37% and its usable
capital/risk-weighted assets (FRA) ratio of 45% were both
'excellent'. Fitch expects both ratios to weaken significantly,
largely reducing IBEC's capital buffers and ability to withstand
future shocks, primarily because of the weakening credit quality of
the bank's assets and deterioration in loan performance. The bank
has suspended all loan disbursement as an immediate response to the
crisis.
Deterioration in Business Environment: Fitch's assessment of IBEC's
business environment has markedly deteriorated as a result of the
conflict in Ukraine. The operating environment is now considered
'high risk', to reflect the deterioration in the credit quality of
Russia where the bank is headquartered. Fitch also believes that
the ongoing conflict has significantly and durably affected the
relationship between Russia (IBEC's largest shareholders with 52%
of the capital as of end-2021) and its large EU shareholders (e.g.
Czech Republic, 13% of capital and Poland, 12% of capital), which
in turn will affect the bank's business profile including its
governance, policy importance and strategy.
Lower Quality Liquidity Buffers: The downgrade of Russian assets
will markedly reduce the credit quality of liquid assets with the
average rating of the treasury portfolio set to weaken to the 'BB'
category from 'BBB-' at end-2021. Fitch expects the ratio of liquid
assets to short-term debt will remain on average above the 100%
threshold for 'strong' (from 140% as of end 2021).
No Ownership Uplift: Fitch does not assign any credit uplift for
shareholders' support (assessed at 'ccc') for IBEC. The support
rating is anchored on the sovereign rating of the bank's sole key
shareholder, Russia (52% of capital as of end-2021) with Fitch's
assessment of weak extraordinary support propensity translating
into a two-notch negative adjustment. The propensity assessment
reflects the bank's limited role in the financing of its member
states, the absence of callable capital and no expectation of
paid-in capital increases over the forecast period.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Solvency (Risks): Tightening of sanctions that heighten the
macro financial shock and leads to sharper-than-expected
deterioration in asset quality metrics.
-- Solvency (Capitalisation): Decline in capitalisation metrics
beyond Fitch's current expectation, which for example could
result from higher-than-expected losses on the bank's assets
as a result of the economic impact of the sanctions.
-- Liquidity: More severe deterioration in the credit quality of
treasury assets, for example if the impact of sanctions is
higher than currently expected or there is a deterioration in
liquidity that brings the liquidity buffer below 100% of
short-term debt.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Business Environment: De-escalation of geopolitical tensions
that supports an improvement in Fitch's assessment of the
bank's business profile.
-- Solvency (Capitalisation/Risk): Lower risk of macro financial
instability that supports Fitch's assessment of the bank's
asset quality, loan performance and capitalisation.
-- Liquidity: Less severe deterioration in the credit quality of
treasury assets, for example driven by the impact of sanctions
being lower than currently expected or by de-scalation of the
tensions.
Given the liquidity and solvency assessments are the same ('bbb+'),
there would need to be positive improvement in both the liquidity
and the solvency assessments to result in any upward rating
pressure on the Long-Term IDR.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Sovereigns, Public Finance
and Infrastructure issuers have a best-case rating upgrade scenario
(defined as the 99th percentile of rating transitions, measured in
a positive direction) of three notches over a three-year rating
horizon; and a worst-case rating downgrade scenario (defined as the
99th percentile of rating transitions, measured in a negative
direction) of three notches over three years. The complete span of
best- and worst-case scenario credit ratings for all rating
categories ranges from 'AAA' to 'D'. Best- and worst-case scenario
credit ratings are based on historical performance.
ESG CONSIDERATIONS
International Bank for Economic Co-operation has an ESG Relevance
Score of '4' for Rule of Law, Institutional & Regulatory Quality.
All supranationals attract a score of '4'. Supranationals are
neither subject to bank regulation nor supervised by an external
authority. Instead, supranationals comply with their own set of
rules. Fitch pays particular attention to internal prudential
policies, including compliance with these policies.
International Bank for Economic Co-operation has an ESG Relevance
Score of '4' for Policy Status and Mandate Effectiveness. The
limited number of member states leads to geographical
concentration, relative to larger, regional MDBs. This has a
negative impact on the credit profile, and is relevant to the
ratings in conjunction with other factors.
International Bank for Economic Co-operation has an ESG Relevance
Score of '4' for Governance Structure. Russia, (52% of ownership),
as the largest shareholder, exerts a strong influence on the bank's
board, management, and strategy. This has a negative impact on the
credit profile, and is relevant to the ratings in conjunction with
other factors.
The ESG Relevance Score assigned to 'Labour Relations and
Practices' (SLB) has changed to '2' from '3' given that
restrictions on recruitment based on nationality or quotas is no
longer considered to be relevant to Multilateral Development Banks'
ratings.
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
INTERSTATE BANK: Fitch Lowers LongTerm IDR to 'CCC+'
----------------------------------------------------
Fitch Ratings has downgraded Interstate Bank's Long-Term Issuer
Default Rating (IDR) to 'CCC+' from 'BB+' and Short-Term IDR to 'C'
from 'B'. Fitch typically does not assign Outlooks to
supranationals with a rating of 'CCC+' or below.
KEY RATING DRIVERS
The downgrade of Interstate Bank follows the downgrade of Russia's
Long-Term Foreign-Currency IDR to 'B' from 'BBB' on 2 March 2022.
The rating was placed on Rating Watch Negative (RWN). Fitch rates
the bank as a supranational administrative body, given its unique
business model as a multilateral settlement institution operating
in the Commonwealth of Independent States (CIS) and Eurasian
Economic Union (EAEU).
Interstate Bank's ratings are support-driven and take into account
the rating of its key shareholder, Russia, which owns 50% of the
bank's capital. Fitch applies a two-notch downward adjustment from
Russia's rating to reflect Fitch's assessment of the propensity of
the key shareholder to provide support.
Interstate Bank, based in Russia, has only very limited
liabilities, which are mostly in the form of rouble-denominated
deposits. This means current international sanctions against Russia
are unlikely to affect the bank's ability to service existing
liabilities. In addition, its liabilities are small, particularly
relative to the bank's treasury assets, which means that a further
downgrade of Russia would not necessarily impact Interstate Bank's
rating. In this scenario, the bank's ratings would instead be
guided by entity-specific considerations and Fitch's rating
definitions.
The bank's other shareholders are eight countries represented by
the central banks of member states: Armenia (B+/Stable; which owns
1.8% of the bank's capital), Belarus (B/Negative; 8.4%), Kazakhstan
(BBB/Stable; 6.1%), Kyrgyz Republic (1.5%), Moldova (2.9%),
Tajikistan (1.6%), Turkmenistan (B+/Stable; 1.5%), and Ukraine
(CCC; 20.7%).
RATING SENSITIVITIES
Factor that could, individually or collectively, lead to negative
rating action/downgrade:
-- Signs that a default event is becoming more probable, for
instance due to worsening liquidity indicators, potentially
combined with rising liabilities, or increased difficulties in
repaying creditors/depositors due to sanctions-related
complications.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Shareholder Support (Capacity): An upgrade of the Russian
sovereign rating.
-- Shareholder Support (Propensity): A positive revision of our
assessment of shareholders' propensity to support the bank,
which may arise from increased importance of the bank in the
CIS/EAEU economic framework.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Sovereigns, Public Finance
and Infrastructure issuers have a best-case rating upgrade scenario
(defined as the 99th percentile of rating transitions, measured in
a positive direction) of three notches over a three-year rating
horizon; and a worst-case rating downgrade scenario (defined as the
99th percentile of rating transitions, measured in a negative
direction) of three notches over three years. The complete span of
best- and worst-case scenario credit ratings for all rating
categories ranges from 'AAA' to 'D'. Best- and worst-case scenario
credit ratings are based on historical performance.
[*] Fitch Cuts Foreign Curr. IDRs of 20 Russian Gov't. Units to B
-----------------------------------------------------------------
Fitch Ratings, on March 4, 2022, downgraded 20 Russian local and
regional governments' (LRGs) Long-Term Foreign-Currency Issuer
Default Ratings (IDRs) to 'B' and Long-Term Local-Currency IDRs to
'B+', and placed the IDRs on Rating Watch Negative (RWN).
Under applicable credit rating agency (CRA) regulations, the
publication of the local and regional government reviews is subject
to restrictions and must take place according to a published
schedule, except where it is necessary for CRAs to deviate from the
schedule in order to comply with the CRAs' obligation to issue
credit ratings based on all available and relevant information and
disclose credit ratings in a timely manner.
Fitch interprets this provision as allowing us to publish a rating
review in situations where there is a material change in the
creditworthiness of the issuer that Fitch believes makes it
inappropriate for us to wait until the next scheduled review date
to update the rating or Outlook/Watch status. The next schedule
review date for Fitch's rating on Krasnoyarsk Region, Mari El
Republic, City of Moscow, City of St. Petersburg, Stavropol Region,
Sverdlovsk Region, Yamal-Nenets Autonomous District is 01 April
2022; for Altai Region, Bashkortostan Republic, Novosibirsk City,
Republic of Sakha (Yakutia), Republic of Tatarstan is 29 April
2022; for Kirov Region, Nizhniy Novgorod Region, Orenburg Region,
Yaroslavl Region is 20 May 2022 and for Chelyabinsk Region, Lipetsk
Region, Moscow Region and Novosibirsk Region is 10 June 2022, but
Fitch believes the developments for the issuer warrant such a
deviation from the calendar and Fitch's rationale for this is set
out in the first part (High weight factors) of the Key Rating
Drivers section below.
KEY RATING DRIVERS
The downgrade of the IDRs of the 20 Russian LRGs follows the
downgrade of Russia's sovereign Long-Term Foreign-Currency IDR to
'B' from 'BBB' and Long-Term Local-Currency IDR to 'B+' from 'BBB'
and placement of the IDRs on Rating Watch Negative on March 2, 2022
(see 'Fitch Downgrades Russia to 'B'; Places on RWN'). The ratings
of the LRGs under consideration are capped by the sovereign
ratings.
Fitch has also reassessed 'Expenditure Sustainability' Key Risk
Factor (KRF2a) to 'Weaker 'from 'Midrange' for all 20 Russian LRGs
due to the high inflationary operating environment and growing cost
of debt, which will weaken control over total expenditure growth
prospects. Additionally, the 'Liabilities and Liquidity
Flexibility' Key Risk Factor (KRF3b) has been reassessed to
'Weaker' from 'Midrange' for all 20 Russian LRGs due to a material
deterioration in the operating environment with a high
concentration of counterparty risk on committed liquidity lines
below 'BBB-'.
According to Fitch's International LRG Rating Criteria, a majority
of 'Weaker' KRFs in countries rated in the 'B' category or below
leads to a 'Vulnerable' assessment of the risk profile. All these
factors result in a reassessment of the LRGs' risk profiles to
'Vulnerable' from 'Weaker' for Kirov Region, Lipetsk Region, Mari
El Republic, Stavropol Region; to 'Vulnerable' from 'Low Midrange'
for Altai Region, Bashkortostan Republic, Krasnoyarsk Region,
Nizhniy Novgorod Region, Novosibirsk City, Novosibirsk Region,
Orenburg Region, Republic of Sakha (Yakutia), City of St.
Petersburg, Sverdlovsk Region, Yaroslavl Region. Fitch has
reassessed the risk profile to 'Weaker' from 'Low Midrange' for
Chelyabinsk Region, Moscow Region, City of Moscow, Republic of
Tatarstan and Yamal-Nenets Autonomous District due to the
combination of three 'Weaker' and three 'Midrange' KRFs.
No changes have been applied to the Debt Sustainability (DS) score
of any of the issuers, which remain 'aaa' for Bashkortostan
Republic, City of Moscow, City of St. Petersburg, Republic of
Tatarstan and Yamal-Nenets Autonomous District; 'aa' for Altai
Region, Chelyabinsk Region, Lipetsk Region, Mari El Republic,
Moscow Region, Novosibirsk Region, Republic of Sakha (Yakutia) and
Stavropol Region; 'a' for Kirov Region, Krasnoyarsk Region, Nizhniy
Novgorod Region, Novosibirsk City, Orenburg Region, Sverdlovsk
Region, Yaroslavl Region.
The combination of the new risk profile levels and DS scores for
the issuers leads to downward reassessment of the Standalone Credit
Profiles (SCP) as follows: to 'b+' from 'bb-' for Yaroslavl Region;
to 'b+' from 'bb' for Mari El Republic, Nizhniy Novgorod Region,
Novosibirsk City; to 'b+' from 'bb+' for Krasnoyarsk Region,
Lipetsk Region, Orenburg Region, Stavropol Region, Sverdlovsk
Region; to 'b+' from 'bbb-' for Altai Region, Novosibirsk Region,
Republic of Sakha (Yakutia); to 'bb' from 'bbb-' for Moscow Region;
to 'bb' from 'bbb+' for Chelyabinsk Region; to 'bb' from 'a-' for
Bashkortostan Republic; to 'bb' from 'a' for City of St.
Petersburg; to 'bbb' from 'a' for Republic of Tatarstan and
Yamal-Nenets Autonomous District; and to 'bbb' from 'a+' for City
of Moscow. Kirov Region's SCP remains at 'b+'.
The Russian LRGs' IDRs are capped by the Russian sovereign,
reflecting the high influence of the federal government's decisions
on subnational governments and high interdependence between the
national and subnational finances, which results in the sovereign
rating being a cap for the LRGs' IDRs and leads to the RWN on their
LT IDRs.
Fitch will continue to monitor the evolving situation and its
impact on the Russian LRGs as it could pertain to the individual
SCPs and ratings via reassessment of issuer-specific KRFs and DS
assessments.
DERIVATION SUMMARY
The SCPs of Kirov Region, Krasnoyarsk Region, Nizhniy Novgorod
Region, Novosibirsk City, Orenburg Region, Sverdlovsk Region,
Yaroslavl Region are assessed at 'b+', reflecting a combination of
a 'Vulnerable' risk profile and DS metrics assessed in the 'a'
category.
The SCPs of Altai Region, Lipetsk Region, Mari El Republic,
Novosibirsk Region, Republic of Sakha (Yakutia) and Stavropol
Region are assessed at 'b+', reflecting a combination of a
'Vulnerable' risk profile and DS metrics assessed in the 'aa'
category.
The SCPs of Bashkortostan Republic and City of St. Petersburg are
assessed at 'bb', reflecting a combination of a 'Vulnerable' risk
profile and DS metrics assessed in the 'aaa' category.
The SCPs of Chelyabinsk Region and Moscow Region are assessed at
'bb', reflecting a combination of a 'Weaker' risk profile and DS
metrics assessed in the 'aa' category.
The SCPs of City of Moscow, Republic of Tatarstan and Yamal-Nenets
Autonomous District are assessed at 'bbb', reflecting a combination
of a 'Weaker' risk profile and DS metrics assessed in the 'aaa'
category.
For all 20 Russian LRGs under review, the Long-Term
Foreign-Currency IDRs are capped by Russia's Long-Term
Foreign-Currency IDR of 'B', and their Long-Term Local-Currency
IDRs are capped by Russia's Long-Term Local-Currency IDR of 'B+'.
The Long-Term IDRs are on RWN, reflecting that on the sovereign.
Fitch has ceased to factor in support from the federal government,
particularly in the form of inter-governmental lending and ad-hoc
support, for Kirov Region and Yaroslavl Region. No other factors
impact the LRG's ratings. Notch-specific SCP positioning factors in
peer comparison.
KEY ASSUMPTIONS
Qualitative assumptions and assessments and their respective change
since the last review and weight in the rating decision. The last
review for Krasnoyarsk Region, Mari El Republic, City of Moscow,
City of St. Petersburg, Stavropol Region, Sverdlovsk Region,
Yamal-Nenets Autonomous District was on 01 October 2021. The last
review for Altai Region, Bashkortostan Republic, Novosibirsk City,
Republic of Sakha (Yakutia), Republic of Tatarstan was on 12
November 2021. The last review for Chelyabinsk Region, Kirov
Region, Lipetsk Region, Moscow Region, Nizhniy Novgorod Region,
Novosibirsk Region, Orenburg Region, Yaroslavl Region was on 10
December 2021.
Altai Region
-- Risk Profile: Vulnerable/lowered with high weight
-- Revenue Robustness: Weaker/unchanged with low weight
-- Revenue Adjustability: Weaker/unchanged with low weight
-- Expenditure Sustainability: Weaker/lowered with high weight
-- Expenditure Adjustability: Midrange/unchanged with low weight
-- Liabilities and Liquidity Robustness: Midrange/unchanged with
low weight
-- Liabilities and Liquidity Flexibility: Weaker/lowered with
high weight
-- Debt sustainability: 'aa' category/unchanged with low weight
-- Budget Loans or Ad Hoc Support: N/A, unchanged low weight
-- Asymmetric Risk: N/A, unchanged with low weight
-- Sovereign Cap: B, lowered with high weight
-- Rating Floor: N/A, unchanged with low weight
Bashkortostan Republic, City of St. Petersburg
-- Risk Profiles: Vulnerable/lowered with high weight
-- Revenue Robustness: Midrange/unchanged with low weight
-- Revenue Adjustability: Weaker/unchanged with low weight
-- Expenditure Sustainability: Weaker/lowered with high weight
-- Expenditure Adjustability: Weaker/unchanged with low weight
-- Liabilities and Liquidity Robustness: Midrange /unchanged with
low weight
-- Liabilities and Liquidity Flexibility: Weaker/lowered with
high weight
-- Debt sustainability: 'aaa' category, unchanged with low weight
-- Budget Loans or Ad Hoc Support: N/A, unchanged low weight
-- Asymmetric Risk: N/A, unchanged with low weight
-- Sovereign Cap: B, lowered with high weight
-- Rating Floor: N/A, unchanged with low weight
Novosibirsk Region, Republic of Sakha (Yakutia)
-- Risk Profiles: Vulnerable/lowered with high weight
-- Revenue Robustness: Midrange/unchanged with low weight
-- Revenue Adjustability: Weaker/unchanged with low weight
-- Expenditure Sustainability: Weaker/lowered with high weight
-- Expenditure Adjustability: Weaker/unchanged with low weight
-- Liabilities and Liquidity Robustness: Midrange/unchanged with
low weight
-- Liabilities and Liquidity Flexibility: Weaker/lowered with
high weight
-- Debt sustainability: 'aa' category, unchanged with low weight
-- Budget Loans or Ad Hoc Support: N/A, unchanged low weight
-- Asymmetric Risk: N/A, unchanged with low weight
-- Sovereign Cap: B, lowered with high weight
-- Rating Floor: N/A, unchanged with low weight
Krasnoyarsk Region, Nizhniy Novgorod Region, Novosibirsk City,
Orenburg Region, Sverdlovsk Region
-- Risk Profiles: Vulnerable/lowered with high weight
-- Revenue Robustness: Midrange/unchanged with low weight
-- Revenue Adjustability: Weaker/unchanged with low weight
-- Expenditure Sustainability: Weaker/lowered with high weight
-- Expenditure Adjustability: Weaker/unchanged with low weight
-- Liabilities and Liquidity Robustness: Midrange/unchanged with
low weight
-- Liabilities and Liquidity Flexibility: Weaker/lowered with
high weight
-- Debt sustainability: 'a' category, unchanged with low weight
-- Budget Loans or Ad Hoc Support: N/A, unchanged with low weight
-- Asymmetric Risk: N/A, unchanged with low weight
-- Sovereign Cap: B, lowered with high weight
-- Rating Floor: N/A, unchanged with low weight
Yaroslavl Region
-- Risk Profiles: Vulnerable/lowered with high weight
-- Revenue Robustness: Midrange/unchanged with low weight
-- Revenue Adjustability: Weaker/unchanged with low weight
-- Expenditure Sustainability: Weaker/lowered with high weight
-- Expenditure Adjustability: Weaker/unchanged with low weight
-- Liabilities and Liquidity Robustness: Midrange/unchanged with
low weight
-- Liabilities and Liquidity Flexibility: Weaker/lowered with
high weight
-- Debt sustainability: 'a' category, unchanged with low weight
-- Budget Loans or Ad Hoc Support: N/A, lowered with medium
weight
-- Asymmetric Risk: N/A, unchanged with low weight
-- Sovereign Cap: B, lowered with high weight
-- Rating Floor: N/A, unchanged with low weight
Kirov Region
-- Risk Profiles: Vulnerable/lowered with high weight
-- Revenue Robustness: Weaker/unchanged with low weight
-- Revenue Adjustability: Weaker/unchanged with low weight
-- Expenditure Sustainability: Weaker/lowered with high weight
-- Expenditure Adjustability: Weaker/unchanged with low weight
-- Liabilities and Liquidity Robustness: Midrange/unchanged with
low weight
-- Liabilities and Liquidity Flexibility: Weaker/lowered with
high weight
-- Debt sustainability: 'a' category, unchanged with low weight
-- Budget Loans or Ad Hoc Support: N/A, lowered with medium
weight
-- Asymmetric Risk: N/A, unchanged with low weight
-- Sovereign Cap: B, lowered with high weight
-- Rating Floor: N/A, unchanged with low weight
Lipetsk Region, Mari El Region, Stavropol Region
-- Risk Profiles: Vulnerable/lowered with high weight
-- Revenue Robustness: Weaker/unchanged with low weight
-- Revenue Adjustability: Weaker/unchanged with low weight
-- Expenditure Sustainability: Weaker/lowered with high weight
-- Expenditure Adjustability: Weaker/unchanged with low weight
-- Liabilities and Liquidity Robustness: Midrange/unchanged with
low weight
-- Liabilities and Liquidity Flexibility: Weaker/lowered with
high weight
-- Debt sustainability: 'aa' category, unchanged with low weight
-- Budget Loans or Ad Hoc Support: N/A, unchanged with low weight
-- Asymmetric Risk: N/A, unchanged with low weight
-- Sovereign Cap: B, lowered with high weight
-- Rating Floor: N/A, unchanged with low weight
Chelyabinsk Region, Moscow Region
-- Risk Profiles: Weaker/lowered with high weight
-- Revenue Robustness: Midrange/unchanged with low weight
-- Revenue Adjustability: Weaker/unchanged with low weight
-- Expenditure Sustainability: Weaker/lowered with high weight
-- Expenditure Adjustability: Midrange/unchanged with low weight
-- Liabilities and Liquidity Robustness: Midrange/unchanged with
low weight
-- Liabilities and Liquidity Flexibility: Weaker/lowered with
high weight
-- Debt sustainability: 'aa' category, unchanged with low weight
-- Budget Loans or Ad Hoc Support: N/A, unchanged with low weight
-- Asymmetric Risk: N/A, unchanged with low weight
-- Sovereign Cap: B, lowered with high weight
-- Rating Floor: N/A, unchanged with low weight
City of Moscow, Republic of Tatarstan, Yamal-Nenets Autonomous
District
-- Risk Profiles: Weaker/lowered with high weight
-- Revenue Robustness: Midrange/unchanged with low weight
-- Revenue Adjustability: Weaker/unchanged with low weight
-- Expenditure Sustainability: Weaker/lowered with high weight
-- Expenditure Adjustability: Midrange/unchanged with low weight
-- Liabilities and Liquidity Robustness: Midrange/unchanged with
low weight
-- Liabilities and Liquidity Flexibility: Weaker/lowered with
high weight
-- Debt sustainability: 'aaa' category, unchanged with low weight
-- Budget Loans or Ad Hoc Support: N/A, unchanged with low weight
-- Asymmetric Risk: N/A, unchanged with low weight
-- Sovereign Cap: B, lowered with high weight
-- Rating Floor: N/A, unchanged with low weight
Quantitative assumptions - issuer-specific: unchanged with low
weight
Fitch's rating case scenario is a "through-the-cycle" scenario,
which incorporates a combination of revenue, cost and financial
risk stresses. It is based on the 2016-2020 figures and 2021-2025
projected ratios. For individual, issuer-specific quantitative
assumptions see the latest published rating action commentary on
each issuer at www.fitchratings.com.
Quantitative assumptions - sovereign-related (note that no weights
and changes since the last review are included as none of these
assumptions were material to the rating action)
Figures as per Fitch's sovereign data for 2020 and forecast for
2023, respectively:
-- GDP per capita (US dollar, market exchange rate): 10,136;
12,920
-- Real GDP growth (%): -3.0; 2.0
-- Consumer prices (annual average % change): 3.4; 4.2
-- General government balance (% of GDP): -4.0; 0.6
-- General government debt (% of GDP): 20.4; 18.5
-- Current account balance plus net FDI (% of GDP): 2.7; 3.4
-- Net external debt (% of GDP): -46.9; -45.7
-- IMF Development Classification: EM (emerging market)
RATING SENSITIVITIES
Factor that could, individually or collectively, lead to positive
rating action/upgrade:
-- Positive rating action on the sovereign, including resolution
of the RWN, would lead to corresponding action on the issuer's
ratings.
Factor that could, individually or collectively, lead to negative
rating action/downgrade:
-- A downgrade of Russia's sovereigns IDRs, or lowered SCPs,
which may result from a material deterioration of DS with a
debt payback ratio beyond 18 years, would lead to downgrades
of the LRGs' respective IDRs.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Sovereigns, Public Finance
and Infrastructure issuers have a best-case rating upgrade scenario
(defined as the 99th percentile of rating transitions, measured in
a positive direction) of three notches over a three-year rating
horizon; and a worst-case rating downgrade scenario (defined as the
99th percentile of rating transitions, measured in a negative
direction) of three notches over three years. The complete span of
best- and worst-case scenario credit ratings for all rating
categories ranges from 'AAA' to 'D'. Best- and worst-case scenario
credit ratings are based on historical performance.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
The ratings of the Russian LRGs under this review are capped by the
Russian sovereign's ratings.
ESG CONSIDERATIONS
Krasnoyarsk Region, Orenburg Region, Republic of Sakha (Yakutia)
and Yamal-Nenets Autonomous District have ESG Relevance Scores of
'4' for 'Biodiversity and Natural Resource Management' due to the
concentration of taxpayers in natural resource exploration and
processing, which exposes their revenue to commodity-price
volatility. This has a negative impact on the credit profile, and
is relevant to the ratings in conjunction with other factors.
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
[*] Fitch Cuts IDRs of 5 Russian Non-Bank Fin'l. Entities to 'B'
----------------------------------------------------------------
Fitch Ratings has downgraded the Long-Term Foreign Currency Issuer
Default Ratings (IDRs) of five Russian non-bank financial
institutions (NBFI) to 'B' and placed them on Rating Watch
Negative.
The affected entities are:
-- JSC GTLK (GTLK), downgraded from 'BB+'/Outlook Positive;
-- JSC Rosagroleasing (RAL), downgraded from 'BB+'/ Stable;
-- Central Counterparty National Clearing Centre (NCC),
downgraded from 'BBB'/ Stable;
-- RESO-Leasing LLC (RL), downgraded from 'BB'/Stable;
-- Aton Financial Holding (Aton), downgraded from 'B+'/ Positive.
The rating actions follow the downgrade of Russia's sovereign
ratings and revision of the Country Ceiling.
Rating Withdrawals
Fitch has withdrawn Support Ratings and Support Rating Floors of
NCC, GTLK and RAL as they are no longer relevant to the agency's
coverage following the publication of its updated Non-Bank
Financial Institutions Rating Criteria on 31 January 2022.
KEY RATING DRIVERS
Sanctions imposed by the US and the EU after the military invasion
of Russia into Ukraine on 24 February have put significant pressure
on business and financial profiles of Russian non-bank financial
institutions and their ability to service obligations in foreign
currency.
Long-Term Foreign Currency IDRs, VR
The downgrades of the Long-Term IDRs to 'B', and downgrade of NCC's
Viability Rating (VR) to 'b' follow a sharp deterioration of the
Russian operating environment, as reflected in the recent downgrade
of the sovereign ratings and revision of the Country Ceiling to
'B'. The Rating Watch Negative mirror the Negative Watch on the
sovereign rating, and reflect increased pressures on the companies'
profiles due to sanctions imposed against Russia in recent days.
The rating actions factor heightened macro-financial risks
including rouble depreciation, banking sector instability resulting
in deterioration of credit supply and affordability, weakening of
GDP growth potential, loss of economic confidence and weakening of
consumer demand.
SHORT-TERM IDRs
Fitch downgraded the Short-Term IDRs of NCC to 'B' from 'F2',
mirroring the downgrade of its Long-Term Foreign Currency IDR. The
Short-Term IDRs for all the other reviewed entities remain 'B'. The
Short-Term IDRs of all five entities have been placed on Negative
Watch, reflecting their sensitivity to a downgrade in case of a
multi-notch downgrade of corresponding Long-Term Foreign Currency
IDRs.
DEBT RATINGS
GTLK's rouble-denominated senior unsecured debt ratings are aligned
with the company's Long-Term Local Currency IDR, which has been
downgraded to 'B'/Negative Watch. The U.S. dollar-denominated notes
issued by GTLK's Ireland-based subsidiary, GTLK Europe DAC, and its
financing SPV, GTLK Europe Capital DAC, are rated in line with
GTLK's Long-Term Foreign Currency IDR, as they benefit from an
unconditional and irrevocable guarantee from GTLK.
GSRs, SSRs, Support Ratings
In line with Fitch's updated criteria, the agency has assigned a
'b' Government Support Ratings (GSR) to NCC, GTLK and RAL. This
reflects the authorities' weaker ability to support companies with
foreign currency. All three GSRs are on Negative Watch, mirroring
Russia's sovereign rating.
Fitch has assigned RL and Aton a Shareholder Support Ratings (SSR)
of 'ns' (No Support), indicating that the ratings do not include an
assumption of extraordinary support.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- The ratings are primarily sensitive to a downgrade of the
sovereign IDR/Country Ceiling.
-- The ratings could also be downgraded in the absence of a
sovereign downgrade, and in the scenario of substantial
further deterioration of the operating environment undermining
the entities' liquidity or funding capacity, marked erosion of
solvency due to realisation of credit or market risk
-- Individual or sector-wide sanctions, potential operational
constraints or regulatory restriction on the fulfilment of
certain obligations, if this results in material economic
losses for creditors.
-- For GTLK Europe DAC's and GTLK Europe Capital DAC's debt
ratings, any indication that GTLK is unable to honour its
guarantee would likely result in a multi-notch downgrade.
Factor that could, individually or collectively, lead to positive
rating action/upgrade:
-- The ratings are capped by Russian Country Ceiling. A positive
rating action on the sovereign rating, indicating improvement
in the operating environment, could lead to positive rating
action on the entities' Long-Term Foreign Currency IDRs.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Financial Institutions and
Covered Bond issuers have a best-case rating upgrade scenario
(defined as the 99th percentile of rating transitions, measured in
a positive direction) of three notches over a three-year rating
horizon; and a worst-case rating downgrade scenario (defined as the
99th percentile of rating transitions, measured in a negative
direction) of four notches over three years. The complete span of
best- and worst-case scenario credit ratings for all rating
categories ranges from 'AAA' to 'D'. Best- and worst-case scenario
credit ratings are based on historical performance.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
The Long-Term Foreign Currency IDRs of all five entities are capped
by the Russian Country Ceiling.
The ratings of guaranteed debt issued by GTLK Europe and GTLK
Europe Capital are equalised with GTLK's Long-Term Foreign Currency
IDR.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
[*] Fitch Lowers Foreign Cureency IDRs of 6 Russian GREs to 'B'
---------------------------------------------------------------
Fitch Ratings has downgraded six Russian government-related
entities (GREs) Long-Term Foreign-Currency Issuer Default Ratings
(IDRs) to 'B' from 'BBB' and placed their IDRs and debt ratings on
Rating Watch Negative (RWN).
KEY RATING DRIVERS
The downgrades follow the downgrade of the Russian sovereign on 2
March 2022 (see' Fitch Downgrades Russia to 'B'; on RWN). This has
a direct impact on the affected entities' ratings as Fitch
considers them as GREs of Russia, based on its GRE Rating Criteria.
The RWN reflects that on the sovereign IDRs.
The downgrades reflect Fitch's unchanged assessment of the strength
of linkage with the Russian government and the government's
incentive to support these GREs since Fitch's last review in 2021.
The affected Russian GREs are:
- Russian Highways State Company - AVTODOR,
- JSC Russian Post (RP),
- Russia Housing and Urban Development Corporation JSC (DOM.RF),
- JSC RUSNANO,
- JSC Russian Railways (RZD),
- JSC Federal Passenger Company (FPC).
DERIVATION SUMMARY
Fitch classifies the six companies as entities ultimately linked to
Russian sovereign under its GRE Rating Criteria. The support score
of AVTODOR, DOM.RF and RUSNANO warrants equalization with the
sovereign irrespective of their Standalone Credit Profile (SCP)
assessments due to their policy roles.
The support scores of RZD, FPC, and RP combined with their SCPs,
which have been lowered to 'b' from 'bb+' for RP and FPC and from
'bbb+' for RZD, due to the downward reassessment of revenue
defensibility and operating risk to 'Weaker', lead to rating
equalisation with the sovereign. Therefore, the six GREs' ratings
are capped by Russia's sovereign IDR at 'B'.
DEBT RATINGS
The ratings of all senior debt instruments have been downgraded and
placed on RWN as they are aligned with the Long- and Short-term
IDRs of the respective GRE, including for RZD the senior unsecured
debt of its special financial vehicle company, RZD Capital P.L.C.
The latter reflects Fitch's view that it constitutes direct,
unconditional senior unsecured obligations of RZD and ranks pari
passu with all of its other present and future unsecured and
unsubordinated obligations
Fitch has also downgraded RZD's Swiss franc perpetual loan
participation notes to 'CCC' from 'BB+' keeping them two notches
lower than RZD's IDR of 'B', following the sovereign downgrade.
RATING SENSITIVITIES
Factor that could, individually or collectively, lead to positive
rating action/upgrade:
-- An upgrade of Russia's sovereign rating/resolution of the RWN.
Factor that could, individually or collectively, lead to negative
rating action/downgrade:
-- A downgrade of Russia's sovereign rating.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Sovereigns, Public Finance
and Infrastructure issuers have a best-case rating upgrade scenario
(defined as the 99th percentile of rating transitions, measured in
a positive direction) of three notches over a three-year rating
horizon; and a worst-case rating downgrade scenario (defined as the
99th percentile of rating transitions, measured in a negative
direction) of three notches over three years. The complete span of
best- and worst-case scenario credit ratings for all rating
categories ranges from 'AAA' to 'D'. Best- and worst-case scenario
credit ratings are based on historical performance.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
AVTODOR, RP, RZD, FPC, DOM.RF and Rusnano's ratings are
credit-linked to Russia's sovereign ratings.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
[*] Fitch Lowers Ratings on 3 Russian Port & Airport Operators
--------------------------------------------------------------
Fitch Ratings has downgraded three Russian port and airport
operators as follows:
-- LLC Deloport's (Deloports) Long-Term (LT) Issuer Default
Rating (IDR) and LT rating to 'B' from 'B+'.
-- Global Port Finance PLC, Global Ports Investments PLC and JSC
First Container Terminal's (together Global Ports) LT IDRs, LT
ratings and LT Local-Currency (LC) IDR to 'B' from 'BB+'.
-- DME Limited and DME Airport Designated Activity Company's
(together DME) LT IDR and LT rating to 'CCC' from 'BB'.
All ratings have been placed on Rating Watch Negative (RWN).
RATING RATIONALE
The rating actions follow the downgrade of Russia's sovereign LT
Foreign-Currency (FC) IDR to 'B'/RWN from 'BBB', with the Country
Ceiling at 'B'. The LT LC IDR is one notch higher at 'B+'/RWN.
The downgrade of Russia' sovereign ratings considers the severity
of international sanctions in response to Russia's military
invasion of Ukraine. The sanctions have heightened macro-financial
stability risks, represent a huge shock to Russia's credit
fundamentals and could undermine its willingness to service
government debt. Developments will weaken Russia's external and
public finances, severely constrain its financing flexibility,
markedly reduce trend GDP growth, and elevate domestic and
geopolitical risk and uncertainty. In Fitch's view, tightening
sanctions will also reduce the private sector's ability to
refinance its external debt.
The downgrades of transport infrastructure operators reflect
increased pressure on the companies' credit profiles resulting from
the significant rouble depreciation impinging on US
dollar-denominated debt, expected material contraction in domestic
demand and import/export operations as well as the heightening
refinancing risk. The RWN reflects the potential for further
negative rating action, given the limited visibility of the
development of the Russian economic and legal environment.
KEY RATING DRIVERS
Deloports
The rating actions on Deloports' LT FC IDR considers the downgrade
of Russia's sovereign ratings, the expected material downside of
ports' export-import operations and contraction in domestic
demand.
Global Ports
The rating actions on the LT FC and LC IDRs of Global Ports
consider the downgrade of Russia's sovereign ratings as well as its
exposure to export-import trade flows, the expected contraction in
domestic demand and the group's significant US dollar-denominated
FC debt.
DME
The rating actions on DME Ltd's LT IDR and DME Airport Designated
Activity Company's loan participation consider the significant
exposure to unhedged US dollar-denominated foreign debt,
refinancing pressure and sanctions directly affecting Russia's air
travel market.
Most of DME's debt is US dollar-denominated notes (USD653 million
as of February 2022), and therefore highly exposed to rouble
depreciation that materially increases debt size and debt service.
At the same time, sanctions from European countries and the US
banning Russian air carriers from entering European and US airspace
makes DME's hard-currency revenue insufficient to mitigate the
negative effect of rouble weakening on the company's foreign debt.
The EU and US ban on selling, leasing, maintaining aircrafts to
Russian air carrier operators will also create significant stress
in the domestic air travel market, while the expected decrease in
domestic demand will put pressure on the propensity to fly. DME is
also under refinancing pressure as it has significant rouble
maturities in June (RUB5 billion notes), December 2022 (RUB10
billion notes) and US dollar maturities (USD200 million outstanding
notes) in February 2023. Currently, these maturities are not fully
covered by existing cash.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
Deloports
-- Downgrade of sovereign rating/Country Ceiling;
-- Further deterioration of the operating, financial and
regulatory environment;
-- Failure to prefund its bullet debt well in advance or legal
constraint to serve its foreign currency debt.
Global Ports
-- Downgrade of sovereign rating/Country Ceiling;
-- Further deterioration of the operating, financial and
regulatory environment;
-- Failure to prefund its bullet debt well in advance or legal
constraint to serve its FC debt.
DME
-- Downgrade of sovereign rating/Country Ceiling;
-- Failure to prefund its bullet debt in advance or legal
constraint to serve its FC debt.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
Deloports
-- De-escalation of geopolitical tensions together with a
stabilisation of the operating, financial and regulatory
environment, leading to a normalisation of the issuer's
ability to generate cash flow, service its debt and
satisfactorily manage liquidity and refinancing risk, provided
there was positive rating action on Russia.
Global Ports
-- De-escalation of geopolitical tensions together with a
stabilisation of the operating, financial and regulatory
environment, leading to a normalisation of the issuer's
ability to generate cash flow, service its debt and
satisfactorily manage liquidity and refinancing risk, provided
there was positive rating action on Russia.
DME
-- Refinancing of LC and FC debt well in advance of their
maturity together with a de-escalation of geopolitical
tensions and a stabilisation of the economic and financial
situation.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Sovereigns, Public Finance
and Infrastructure issuers have a best-case rating upgrade scenario
(defined as the 99th percentile of rating transitions, measured in
a positive direction) of three notches over a three-year rating
horizon; and a worst-case rating downgrade scenario (defined as the
99th percentile of rating transitions, measured in a negative
direction) of three notches over three years. The complete span of
best- and worst-case scenario credit ratings for all rating
categories ranges from 'AAA' to 'D'. Best- and worst-case scenario
credit ratings are based on historical performance.
TRANSACTION SUMMARY
Deloports
DeloPorts is a Russian holding company that owns and operates
several stevedoring assets of Delo Group in the Russian port of
Novorossiysk. Its two main subsidiaries are the fully-owned
container terminal NUTEP and the grain terminal KSK (in which
DeloPorts holds 75% - 1 share).
Global Ports
Global Ports is a holding company and the leading container
terminal operator serving Russian cargo flows in the Baltic and the
Far-East basins. The group's main business is container handling.
In addition, the group handles a number of other types of cargo,
including cars and other types of roll-on roll-off cargo and bulk
cargoes. Its three main subsidiaries are the container terminals
FCT, Petrolesport and Vostochnaya Stevedoring Company, which are
100% owned by the group.
DME
DME operates Domodedovo Airport, one of the three main airports in
Moscow. DME Airport Designated Activity Company, formerly DME
Airport Limited, an Irish SPV, is the issuer of the notes, with the
proceeds on-lent to the borrower, Hacienda Investments Ltd
(Cyprus). The loans are guaranteed by the holding company DME and a
majority of DME operational subsidiaries on a joint and several
basis. The group owns the terminal buildings and leases the runways
and other airfield assets from the Russian government.
ESG CONSIDERATIONS
DME has an ESG Relevance Score of '4' for Governance Structure due
to the absence of an independent board of directors and ownership
concentration, which has a negative impact on the credit profile,
and is relevant to the rating in combination with other factors.
DeloPorts has an ESG Relevance Score of '4' for Governance
Structure due to the lack of effective ring-fencing of DeloPorts
towards MC Delo, which drives Fitch's consolidated approach and has
a negative impact on DeloPorts' credit profile, and is relevant to
the ratings in conjunction with other factors.
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
[*] RUSSIA: Gov't, Cos Allowed to Pay Foreign Creditors in Rubles
-----------------------------------------------------------------
Irene Garcia Perez at Bloomberg News reports that Russia and
Russian companies will be allowed to pay foreign creditors in
rubles, according to a decree signed by President Vladimir Putin on
Saturday, March 5, as a way to service debt while capital controls
remain in place.
According to Bloomberg, the decree establishes temporary rules for
sovereign and corporate debtors to make payments to creditors from
"countries that engage in hostile activities" against Russia, its
companies and citizens. The government specified on March 5 that
it will prepare a list of such countries within two days, Bloomberg
discloses.
Russian corporate bonds denominated in foreign currencies have
plunged to deeply distressed levels in recent days as investors
weighed the impact of sanctions imposed on the country in the wake
of its invasion of Ukraine, Bloomberg relates. The Russian
government responded to the penalties by dramatically reducing
access to foreign currencies, which could restrict the ability of
bondholders to receive interest and principal payments, Bloomberg
states.
Separately, clearing houses Clearstream and Euroclear stopped
accepting the ruble as settlement currency and have excluded all
securities issued by Russian entities from all Triparty
transactions, barring a traditional channel used to make payments
to bondholders, Bloomberg relays.
According to the decree on servicing foreign-held debt, payments
will be considered executed if they are carried out in rubles at
the central bank's official rate, Bloomberg notes.
According to Bloomberg, Russia's Central Bank said on March 6 that
foreign creditors from countries that have not imposed sanctions
may be able to receive the payment in the currency in which the
debt is denominated if the Russian debtor gets a special permission
to do so.
On March 2, Russia made payment on a 11.2 billion-ruble coupon for
339 billion rubles of sovereign bonds known as OFZs due February
2024, Bloomberg relates. While Russia's National Settlement
Depository received the money, foreign bondholders weren't paid
because of the central bank's order barring foreign payments,
Bloomberg notes. That triggered a debate over whether or not that
constituted a default, Bloomberg states.
Some of Russia's foreign sovereign bonds do allow payments in
rubles. That's a potential problem for holders of credit-default
swaps, which are derivatives that insure against defaults,
according to Bloomberg.
JPMorgan Chase & Co. strategists led by Trang Nguyen say that the
optionality to pay in rubles "may render these bonds out of scope
for CDS as 'obligations' and 'deliverable obligations,'" because
the ruble is the domestic currency of the issuer, and it just so
happens to not be a hard currency, such as the dollar or euro,
Bloomberg relates.
"This means that bonds with ruble fallback provisions can neither
trigger CDS nor be delivered into CDS," Bloomberg quotes Mr. Nguyen
as saying in emailed comments on March 6.
The JPMorgan strategists said Russia has US$117 million worth of
coupons on dollar bonds coming due on March 16 that don't have the
option to be paid in rubles, Bloomberg notes. If Russia decides to
pay in rubles following Putin's decree, "that would be an event of
default and would trigger CDS," Mr. Nguyen, as cited by Bloomberg,
said.
===========================
U N I T E D K I N G D O M
===========================
AMIGO LOANS: To Present Scheme of Arrangement in Court Today
------------------------------------------------------------
Siddharth Venkataramakrishnan at The Financial Times report that
the Financial Conduct Authority has laid the ground for Amigo Loans
to potentially resume lending, saying it will not oppose the
group's new financial plan when it is presented to court this
week.
The watchdog's decision not to intervene at this stage is an
important step for the troubled payday loans company after it
rejected a previous proposal, although it is only one of many
barriers to a full-scale recovery, the FT states.
According to the FT, Amigo, which lends to people with poor credit
histories, will today, March 8, set out a scheme of arrangement in
the High Court, making a larger offer to creditors and detailing
conditions about a new business model and a return to lending.
The FCA said it would not oppose the plan but did not rule out
intervening in the new scheme of arrangement in future, the FT
relates.
It added that if the scheme was sanctioned by the court and lending
conditions were met, the company could return to lending. "If the
firm were to return to lending, the FCA will continue to supervise
it closely," it said.
Amigo stopped lending in November 2020, citing uncertainty
surrounding the pandemic, and has been unable to resume the
business as a result of a struggle over compensation for historic
mis-selling, the FT recounts.
The company has faced complaints from consumers who accused it of
failing to check whether their loans were affordable, the FT
discloses.
"There still remain significant hurdles to overcome before Amigo
can deal with its insolvent balance sheet but this information will
help us move forward to the next stage in delivering the best
outcome possible, given the circumstances," the FT quotes chief
executive Gary Jennison as saying.
In its latest results, Amigo said the board had concluded there was
material uncertainty over its future as a going concern, the FT
notes. The company reported a pre-tax loss in the three months to
December 2021 of GBP500,000, compared with a loss of GBP18.7
million a year earlier, the FT discloses.
The new scheme would offer GBP97 million to creditors, the FT
states. It would seek to raise an additional GBP15 million through
a rights issue for the scheme and to finance new lending, according
to the FT.
GFG ALLIANCE: HMRC Withdraws Winding-Up Petitions After New Deal
----------------------------------------------------------------
Mark Kleinman at Sky News reports that the steel tycoon Sanjeev
Gupta has won another reprieve after agreeing a new deal with HM
Revenue & Customs (HMRC) to repay tens of millions of pounds of tax
liabilities.
Sky News understands that HMRC has withdrawn a series of winding-up
petitions against parts of Mr. Gupta's GFG Alliance conglomerate
after a revised proposal was tabled by the businessman in recent
days.
Confirming Sky News' earlier report, chief transformation officer
Jeffrey Kabel said: "We're pleased to report good further progress
in our negotiations with creditors including UK's HMRC."
According to Sky News, if the petitions had been successful, it
could have forced some of Mr. Gupta's most important UK operations,
including those at Hartlepool, Rotherham and Stockbridge, into
administration, potentially affecting around 2,000 British
industrial jobs.
Details of the arrangement reached between Mr. Gupta and the tax
authorities were unclear on Monday, March 7, Sky News notes.
The tycoon has been fighting a rearguard action to keep GFG afloat
for most of the last year following the collapse of Greensill
Capital, its main lender, Sky News relays.
He originally sought GBP170 million from the government to stave
off the group's collapse, but the plea was rejected by ministers,
Sky News discloses.
News of the deal with HMRC comes just days after it emerged that
Mr. Gupta was considering whether and how to unwind GFG's
commercial ties to Gazprom, the Russian energy giant, Sky News
states.
GREAT GEORGE: Enters Administration Following Court Hearing
-----------------------------------------------------------
Tom Duffy at Liverpool Echo reports that the development company
behind the controversial New Chinatown project, The Great George
Street Project Limited (GGSPL), has collapsed into administration.
The Great George Street Project Limited (GGSPL) entered into
administration following a High Court hearing, the ECHO relates.
The application, brought by Maghull businessman and creditor
Francis Molloy, is the latest twist in a long running saga that has
attracted huge controversy since it was first launched seven years
ago, the ECHO notes.
The first scheme, promoted by Liverpool businessman Peter McInnes,
received a blaze of publicity in 2015.
The GBP200 million project by the Chinatown Development Company
(CDC) envisaged new shops, homes and offices off Great George
Street and was expected to revive the city's historic Chinatown
community.
However, the scheme began to stall the following year after the
ECHO reported on a complicated hearing at Preston Crown Court, the
ECHO recounts.
Parent company North Point Global then entered into a legal dispute
with Liverpool City Council and work at the site ground to a halt,
the ECHO discloses.
Investors, who claimed to have put in around GBP6 million, formed a
buyers company and demanded their money back, the ECHO relays.
New company GGSD announced in March 2017 that it had bought CDC and
hoped to start work on phase one of the scheme during the summer of
2019, according to the ECHO.
In January 2019, the Serious Fraud Office (SFO) launched an
investigation into suspected fraud at the CDC and sister company
North Point (Pall Mall) Ltd., the ECHO relates.
The ECHO understands the investigation pre-dated GGSD's involvement
in the scheme.
Last October, the SFO announced they had discontinued their
investigation into suspected fraud at the Chinatown Development
Company and North Point Pall Mall because they did not have enough
evidence to prosecute, the ECHO recounts.
The SFO said that they would, however, continue to assist other
partner agencies with ongoing investigations, the ECHO relates.
Now parent company Great George Street Project Limited, the
successor to CDC, is to be run by administrators Cowgills, the ECHO
states.
Administrators normally try and calculate if a business can either
be saved or should be wound up by a liquidator.
The latest filed accounts for the company from December 2019 show
the company had assets of GBP6,656,600 and liabilities of
GBP9,430,199, with a net deficit of GBP2,773,599, the ECHO
discloses.
Investors in the scheme, who claim they are owed around GBP6
million, welcomed the appointment of administrators.
According to the ECHO, a spokesman said: "New China Town Buyers Ltd
represents 58 buyers in China Town Liverpool and their investment
is secured by a charge it holds on one of the leases on the site.
"Due to an administration order, the main buyers group will now
hopefully get refunds through the sale of the leases on the site.
"The buyers have waited years in hope of a refund out of a scheme
that never should have been given to the developer.
It has been a long and damaging six years for investors who just
believed in a project created by a developer and backed by many
credible institutions, Liverpool Echo states.
STANLINGTON NO. 2: S&P Assigns Prelim. 'BB' Rating on Cl. F Notes
-----------------------------------------------------------------
S&P Global Ratings assigned preliminary credit ratings to
Stanlington No. 2 PLC's class A, B-Dfrd, C-Dfrd, D-Dfrd, E-Dfrd,
and F-Dfrd notes. At closing, Stanlington No. 2 will also issue
unrated class Z and X-Dfrd notes, and Y and RC1 and RC2 residual
certificates.
Stanlington No. 2 is a static RMBS transaction that securitizes a
portfolio of GBP295.12 million owner-occupied and buy-to-let (BTL)
mortgage loans secured on properties in the U.K.
At or before closing the seller (Paratus AMC Ltd.) will purchase
the beneficial interest in the portfolio from the current issuers
(Stanlington No. 1 PLC and Ciel No. 1 PLC). The issuer will use the
issuance proceeds to purchase the full beneficial interest in the
mortgage loans from the seller. The issuer will grant security over
all of its assets in favor of the security trustee.
The pool is well seasoned. Most of the loans are first-lien U.K.
owner-occupied and BTL residential mortgage loans. The borrowers in
this pool may have previously been subject to a county court
judgement (CCJ; or the Scottish equivalent), an individual
voluntary arrangement, a bankruptcy order, may be self-employed,
have self-certified their incomes, or were otherwise considered by
banks and building societies to be nonprime borrowers. The loans
are secured on properties in England, Wales, and Scotland, and were
mostly originated between 1998 and 2008.
There is high exposure to interest-only loans in the pool at 94.1%,
and 8.2% of the mortgage loans are currently in arrears greater
than (or equal to) one month.
A general reserve fund provides liquidity, and principal can be
used to pay senior fees and interest on the notes subject to
various conditions. A further liquidity reserve fund will be funded
to provide liquidity support to the class A and B-Dfrd notes.
Paratus AMC is the servicer in this transaction.
There are no rating constraints in the transaction under our
counterparty, operational risk, or structured finance sovereign
risk criteria. S&P considers the issuer to be bankruptcy remote.
S&P said, "In our cashflow analysis on the class A notes, all notes
must pay full and timely principal and interest. Our preliminary
ratings on the class B-Dfrd to F-Dfrd notes address the payment of
ultimate principal and interest while they are not the most senior
class outstanding. When the class B-Dfrd to F-Dfrd notes become the
most senior class outstanding, our ratings will address the timely
payment of interest and ultimate payment of principal.
"We consider that the available credit enhancement for the class A,
B-Dfrd, C-Dfrd, D-Dfrd, and F-Dfrd notes is commensurate with the
preliminary ratings assigned. Our standard cash flow analysis
indicates that the available credit enhancement for the class
E-Dfrd notes is commensurate with a higher rating than that
currently assigned. However, the rating on these notes also
reflects their ability to withstand the potential repercussions of
the COVID-19 outbreak, including higher defaults and longer
foreclosure timing stresses, also considering their relative
positions in the capital structure."
Preliminary Ratings
CLASS PRELIM. RATING* CLASS SIZE (%)
Class Y certificate NR N/A
A AAA (sf) 87.00
B-Dfrd AA+ (sf) 3.00
C-Dfrd A+ (sf) 3.00
D-Dfrd A- (sf) 2.00
E-Dfrd BBB (sf) 1.00
F-Dfrd BB (sf) 2.00
Z1 NR 2.00
Z2 NR 1.00
X-Dfrd NR 2.00
RC1 (residual certificate) NR N/A
RC2 (residual certificate) NR N/A
*S&P's preliminary ratings address timely receipt of interest and
ultimate repayment of principal for the class A notes, and the
ultimate payment of interest and principal on the other rated
notes, which must pay timely interest once they become the most
senior notes outstanding.
N/A--Not applicable.
NR--Not rated.
STRUCTURED INVESTMENT 1: S&P Lowers Rating on Repack Notes to BB+p
------------------------------------------------------------------
S&P Global Ratings lowered to 'BB+p' from 'BBB-p' and placed on
CreditWatch negative its credit rating on Special Purpose Company
"Structured Investments 1" LLC repack notes.
The rating action follows its Feb. 28, 2022, rating action on
Alfa-Bank JSC and its Feb. 26, 2022, rating action on Russia's
RUB150 billion fixed-rate note.
Under S&P's "Global Methodology For Rating Repackaged Securities"
criteria, S&P weak-link its rating on Special Purpose Company
"Structured Investments 1"'s repack notes to the lowest of:
-- S&P's rating on the RUB150 billion fixed-rate note issued by
Russia;
-- S&P's ICR on Banque Internationale a Luxembourg as custodian;
and
-- S&P's ICR on Alfa-Bank JSC as bank account.
In placing S&P's rating on CreditWatch negative it considered the
recent rating actions on the underlying collateral and the bank
account provider, and the uncertainty around the next underlying
collateral payment, which is due in August 2022. This may be
disrupted, given the current international payment sanctions.
S&P Global Ratings acknowledges a high degree of uncertainty about
the extent, outcome, and consequences of Russia's military conflict
in Ukraine. Irrespective of the duration of military hostilities,
sanctions and related political risks are likely to remain in place
for some time. Potential effects could include dislocated
commodities markets -- notably for oil and gas -- supply chain
disruptions, inflationary pressures, weaker growth, and capital
market volatility. As the situation evolves, S&P will update its
assumptions and estimates accordingly.
*********
S U B S C R I P T I O N I N F O R M A T I O N
Troubled Company Reporter-Europe is a daily newsletter co-
published by Bankruptcy Creditors' Service, Inc., Fairless Hills,
Pennsylvania, USA, and Beard Group, Inc., Washington, D.C., USA.
Marites O. Claro, Rousel Elaine T. Fernandez, Joy A. Agravante,
Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman,
Editors.
Copyright 2022. All rights reserved. ISSN 1529-2754.
This material is copyrighted and any commercial use, resale or
publication in any form (including e-mail forwarding, electronic
re-mailing and photocopying) is strictly prohibited without prior
written permission of the publishers.
Information contained herein is obtained from sources believed to
be reliable, but is not guaranteed.
The TCR Europe subscription rate is US$775 per half-year,
delivered via e-mail. Additional e-mail subscriptions for
members of the same firm for the term of the initial subscription
or balance thereof are US$25 each. For subscription information,
contact Peter Chapman at 215-945-7000.
* * * End of Transmission * * *