29.09.2008 - MDM Comment: HCFB, Saturn, NorNickel, MosOblast

HCFB (Ba3/B+) is changing the strategy and giving up mortgage and auto lending. The new strategy is based on the assumption that capital markets would be closed until the end of 2009 (Source: Vedomosti). In our view, the bondholders should be pleased to see the bank adopting a conservative business plan. We continue to be comfortable with HCFB credit profile, which is based on strong support from a committed and capable parent as well as short-term asset structure.

NPO Saturn, one of Russia’s leading producers of engines for civil aircraft, has paid a coupon on its 12.5% RUB2 bn bond issue within the 7-day grace period. This is important positive news as a public default of this company would have likely triggered a wave of liquidations in the bonds of strategically important machinery companies (for more color on this pls see our commentary from Sep 23).

Norilsk Nickel (Baa2/BBB-) is doing a share buy-back worth about USD2 bn. The transactions, which are presented as simply allocations of spare cash in financial investments, are apparently done in favor of Interros Group, a large stakeholder in Norilsk Nickel. Interros apparently controls the management of the mining group. Since it’s the management voting on treasury shares, the ultimate control of Interros Group is increasing with the buy-back. Rusal – an important minority shareholder – is highly concerned by the situation (Source: Vedomosti). Of course this doesn’t look as good news from a credit perspective. We wouldn’t even rule out some negative comments from the rating agencies. However, we would recommend to use any further price weakness in the short-dated GMKNRU (YTM 12%) issue as a buying opportunity. Norilsk Nickel is a crown jewel of Russian economy, a company with extremely high margins and strong balance sheet. We estimate that even after recent investments, Net debt/EBITDA of the company is below 1x.

S&P has put Moscow Oblast (BB-) on CreditWatch list with a “Negative” outlook on liquidity/refinancing concerns. The rating agency has also added to the Watch list all entities related to Moscow Oblast. In our view, its quite fair for S&P to raise a flag in this particular case. Moscow Oblast definitely has a significant leverage. Other Russian regional administrations and municipalities usually are almost debt-free (some like St.Petersburg or Moscow don’t know where to put extra cash), hence we don’t expect many more negative rating actions in the Russian Public Finance sector. We are confident that Moscow Oblast and its affiliated borrowers (MOITK, MosTransAvto, MOIA, Mosoblgaz) will remain current on their public debts. Obtaining refinancing will not be easy these days, but cash will ultimately be found. The federal MinFin, which has many instruments to lend money to lower budgets, will be the lender of last resort.

29.09.2008 16:36