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