Russian Corporates Face A Long Road To Recovery - December 2020 - S&P ...
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Russian Corporates Face A Long Road To Recovery December 2020
Key Takeaways
– Most
Most of
of our Russian
Russiancorporate
corporateratings
ratingshave
haveremained
remained
unchanged
unchanged
since
since
thethe
start
start
of the
of pandemic,
the pandemic,
although
although
companies’
companies’financial
financialmetrics
metricshave
haveweakened.
weakened.
– We
We expect
expect the Russian
Russiancorporate
corporatesector
sectorwill
willrecover
recover
gradually
gradually
in 2021,
in 2021,
withwith
mostmost
companies
companies
onlyonly
achieving
achieving
2019
2019
creditcredit
metrics
metrics
from from
2022.2022.
– We
We don’t
don’t see any
any major
majorsources
sourcesofofgrowth
growthfor
for
Russian
Russian
companies,
companies,
apart
apart
from
from
recovery,
recovery,
with
with
a few
a few
exceptions.
exceptions.
– Dividends
Dividends will likely
likelyremain
remainhigh,
high,given
giventhe
the
strong
strong
financial
financial
position
position
of many
of many
companies.
companies.
– The
The impact
impact of the
the pandemic
pandemicacross
acrosssectors
sectorsofof
the
the
Russian
Russian
economy
economywaswas
similar
similar
to that
to that
in EMEA.
in EMEA.
Utilities,
Utilities,
infrastructure,
infrastructure,telecommunications,
telecommunications,and
andfood
foodretail
retailwere
wererelatively
relativelyunaffected,
unaffected,and
andresidential
residentialdevelopers
developers
performed
performedstronger
strongerthan
thanexpected
expecteddue
dueto
tosubsidized
subsidizedmortgages.
mortgages.However,
However,the
thelong-term
long-termimplications
implicationsfor
forsectors
sectors
that
thatdepend
dependononconsumer
consumerspending
spendingin
inRussia
Russia could
couldbebemore
morenegative.
negative.
– Commodity
Commodity producers continue
continuetotobe
bemore
moredependent
dependent upon
uponglobal
global
industry
industry
trends,
trends,
but but
the the
government’s
government’s
negative
negative
intervention
intervention
as well as
asthe
well
exchange
as the exchange
rate are also
rate are
important
also important
factors for
factors
recovery.
for recovery.Russian Corporate Ratings Have Seen Limited Movement
– The impact of the pandemic on Russian corporate ratings has been very limited, unlike other markets.
– Some companies were even able to improve their credit quality.
As of Jan. 1, 2014 As of Dec. 31, 2018 As of Nov. 16, 2020
B
(3%)
B B
(11%) (8%)
BBB BBB
BBB (50%) (50%) BB
(52%) BB BB (47%)
(37%) (42%)
Source: S&P Global Ratings.Capital Expenditure Has Remained Relatively Stable
– The pandemic has had limited impact on companies’ capital expenditure (capex), except for in the commodities sector, which has seen
project delays from the global market outlook.
– We don’t see any impetus for investment growth following the pandemic, given the state of the Russian economy.
Commodities’ Capital Expenditure Noncommodities’ Capital Expenditure
5,000 Other non-commodities Russian Railways
5,000
4,000
4,000
Bil. RUB
Bil. RUB
3,000
3,000
2,000 2,000
1,000 1,000
0 0
2014 2015 2016 2017 2018 2019 2020f 2021f 2022f 2014 2015 2016 2017 2018 2019 2020f 2021f 2022f
f--forecast. RUB—Russian ruble. As of October 2020. Source: S&P Global Ratings.
4Recovery Of Free Operating Cash Flow Will Be Gradual
– We believe the largest Russian companies will only see free operating cash flow (FOCF) return to 2019 levels in 2022, given our oil and
metals price assumptions.
Commodities’ FOCF Noncommodities’ FOCF
3,000 Russian Railways Other noncommodities
800
2,500
600
2,000
400
Bil. RUB
1,500 200
Bil. RUB
0
1,000
(200)
500
(400)
0 (600)
2014 2015 2016 2017 2018 2019 2020f 2021f 2022f 2014 2015 2016 2017 2018 2019 2020f 2021f 2022f
f--forecast. RUB--Russian ruble. As of October 2020. Source: S&P Global Ratings.
5Dividends Should Remain High
– We believe dividends will remain meaningful for the largest companies, both private and state-owned.
– Even companies with low net income for the year will likely distribute sizeable amounts to shareholders.
Commodities’ Dividends Noncommodities’ Dividends
2,500 2,500
2,000 2,000
1,500 1,500
Bil. RUB
Bil. RUB
1,000 1,000
500 500
0 0
2014 2015 2016 2017 2018 2019 2020f 2021f 2022f 2014 2015 2016 2017 2018 2019 2020f 2021f 2022f
f--forecast. RUB--Russian ruble. As of October 2020. Source: S&P Global Ratings.
6Financial Metrics Weakened, But Less So Than In Other Regions
– We note a significant weakening of financial metrics in 2020, although less pronounced than in most other countries.
– The rating headroom has reduced and it will take at least two years before metrics return to pre-pandemic levels.
FFO To Debt Debt To EBITDA
Commodities Noncommodities Commodities Noncommodities
80 3.0
70
2.5
60
2.0
50
40 1.5
%
x
30
1.0
20
10 0.5
0 0.0
2014 2015 2016 2017 2018 2019 2020f 2021f 2022f 2014 2015 2016 2017 2018 2019 2020f 2021f 2022f
f--forecast. FFO—Funds from operations. As of October 2020. Source: S&P Global Ratings.
7Liquidity Remains Robust
– Russian companies we rate have maintain their liquidity, thanks to conservative liquidity management.
As of Jan. 1, 2014 As of Nov. 16, 2020
Strong
(2%)
Less than
adequate Strong
(16%) (21%)
Adequate
Adequate
(79%)
(82%)
Source: S&P Global Ratings.
8Russian Companies Maintain Good Access To Global Markets
– Russian companies continue to enjoy stable access to capital markets despite external risks.
– The decreased issuance in fourth-quarter 2020 is the result of companies being unwilling to borrow at higher rates, and likely temporary.
The Russian Corporate Sector’s Eurobond Issuance The Russian Corporate Sector’s Eurobond Maturity Profile
Issue amount No. of issued Eurobonds (right scale) Maturing amount No. of Eurobonds to mature (right scale)
30 41 45 18 23 25
22
40 16 21
25 19
35 14 20
30
15
20 30 12
25 15
22 25 10
Bil. $
Bil. $
15 19 11
17 20 8
8 10
10 13 15 6
5
5 10 4 4 4
6 3 5
5
5 2
0
0 0 0 0
2012 2013 2014 2015 2016 2017 2018 2019 Nov. 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 After
2020 2030
As of Nov.16, 2020. Source: Cbonds.ru.
9The Pandemic’s Impact In EMEA Across Sectors
Sector Level Impact And Recovery
EMEA
O&G--Oil and gas. FX--Foreign exchange. P&I--Profit and loss. LT--Long term. ST--Short term. REITs--Real Estate Investment Trusts. Source: S&P Global Ratings original published in “COVID-19 Heat Map: Updated Sector
Views Show Diverging Recoveries,” on Sept. 29, 2020.
10The Pandemic’s Impact In Russia Across Sectors
Sectors COVID-19 Impact Recovery
– The impact of the pandemic on sectors of the
Retail Low Fast
economy in Russia was similar to that in
Fertilizers Low Fast EMEA.
Telecom Low Fast – Some sectors proved to be even more
resilient than in many emerging markets.
Metals and mining Low Fast
– Sectors that depend on discretional
Infrastructure Low Moderate/Fast consumer spending face the highest long-
term risk, due to a decline in disposable
IFR and transport Medium Moderate incomes and reduced savings.
Real estate High Slow/Moderate
Oil and gas Very High Slow
Restaurants Very High Slow
Tourism Very High Slow
Airports Very High Slow
Airlines Very High Slow
Source: S&P Global Ratings.
11Sector Review
Oil & Gas | Prices And Volumes Will Take Years To Recover
EBITDA Evolution
8,000 – The recovery of oil prices and volumes
7,000 will take years.
6,000
5,000 – Prices to remain lower for longer. We
Bil. RUB
4,000
expect $50 per barrel on average in
3,000
2,000
2021-2022.
1,000
0
– OPEC+ production cuts will constrain
2014 2015 2016 2017 2018 2019 2020f 2021f 2022f the recovery of the Russian oil and gas
sector.
Funds From Operations To Debt – Taxes are increasing with further hikes
120
being a risk.
100
– Consistently high expectations for
80
Bil. RUB
dividends will further pressure the
60
sector’s cash flow and credit metrics.
40
20 – In the oilfield services sector, risks
0 come from the fall in hydrocarbon
2014 2015 2016 2017 2018 2019 2020f 2021f 2022f
volumes and prices.
As of October 2020. RUB--Russian ruble. f--forecast. Source: S&P Global Ratings.
13Oil & Gas (continued)
Capital Expenditure
5,000 – The capex reduction was only moderate compared to the EBITDA
4,000 fall, since companies are developing more complex projects.
Bil. RUB
3,000 – Dividends will remain high, given that the government expects a
2,000 high payout ratio from state-owned companies.
1,000 – Lower EBITDA combined with high capex and dividends will put
0 pressure on FOCF and leverage metrics.
2014 2015 2016 2017 2018 2019 2020f 2021f 2022f
Free Operating Cash Flow Dividends
2,000 1,400
1,500 1,200
1,000
Bil. RUB
Bil. RUB
1,000 800
500 600
400
0
200
(500) 0
2014 2015 2016 2017 2018 2019 2020f 2021f 2022f 2014 2015 2016 2017 2018 2019 2020f 2021f 2022f
As of October 2020. RUB—Russian ruble. f--Forecast. Source: S&P Global Ratings.
14Metals & Mining | Steel Is Under Pressure While Gold Shines
EBITDA Evolution
– Open Asian markets will remain key for resilient
2000
performance of Russian steel producers.
1500
– Gold prices will remain high due to low rates and
Bil. RUB
1000
lasting economy risks. We forecast the price per ounce
at: $1,900 until the end of 2020, $1,700 in 2021, $1,500
500 in 2022, and $1,300 thereafter.
0 – Gold companies will perform well, but credit metrics
2014 2015 2016 2017 2018 2019 2020f 2021f 2022f will depend on financial policies.
Funds From Operations To Debt – MMC Norilsk Nickel will deliver strong results, but
environmental risks add to rating uncertainty.
100
80
– The diamond market is recovering, with the main risk
being a second wave of COVID-19.
60
%
40 – Increasing fiscal pressure is the main risk for the
20 whole mining industry’s recovery.
0
2014 2015 2016 2017 2018 2019 2020f 2021f 2022f
As of October 2020. RUB—Russian ruble. f--forecast. Source: S&P Global Ratings.
15Metals & Mining (continued)
Capital Expenditures
800
700 – Investments and dividends will peak across sector in next years.
600
500 – Steel producers will generate negative free cash flows as lower
Bil. RUB
400
EBITDA will not support full capex and dividend payments.
300
200
100
– Norilsk Nickel and gold producers’ free cash flows will remain
0 positive on strong results.
2014 2015 2016 2017 2018 2019 2020f 2021f 2022f
Free Operating Cash Flow Dividends
1,200 1,000
800
900
Bil. RUB
Bil. RUB
600
600
400
300
200
0 0
2014 2015 2016 2017 2018 2019 2020f 2021f 2022f 2014 2015 2016 2017 2018 2019 2020f 2021f 2022f
As of October 2020. RUB—Russian ruble. F--Forecast. Source: S&P Global Ratings.
16Fertilizers | Pressured Pricing Is Mitigated By Rising Demand
EBITDA Evolution
400
350
300 – The pricing environment will remain
250 subdued in 2021.
Bil. RUB
200
150 – Long-term trends to remain
100
50
favorable, specifically domestically.
0
2014 2015 2016 2017 2018 2019 2020f 2021f 2022f – Environmental, social, and
governance aspects will gain strong
Funds From Operations To Debt momentum for fertilizers.
50
40
30
%
20
10
0
2014 2015 2016 2017 2018 2019 2020f 2021f 2022f
As of October 2020. RUB—Russian ruble. F--Forecast. Source: S&P Global Ratings.
17Fertilizers (continued)
Phosphate Price Evolution
DAP Baltic DAP Benelux FCA MAP Brazil Bulk CFR MAP Baltic – We think fertilizer prices hit bottom in 2020 and expect gradual,
500
but modest recovery through 2021.
450
$/ton
400 – Improving cash flow generation is likely to be diverted to
350 dividends.
300
250
– Capex is still sizable and might increase in 2021-2022.
2017 2018 2019 2020
Potash Price Evolution Russian Fertilizer Producers’ CFO, Capex, and Dividends
Potash China CFR Potash Brazil CFR CFO Capex Dividends
Potash Cornbelt granular Potash US Gulf NOLA 300
Potash India CFR
250
370
Bil. RUB
200
320
150
$/ton
270
100
220 50
170 0
2017 2018 2019 2020 2014 2015 2016 2017 2018 2019 2020f 2021f 2022f
As of October 2020. f--Forecast. RUB—Russian ruble. CFO--Cash flow from operations. Source: S&P Global Ratings, Bloomberg.
18Infrastructure & Transportation | Moderate Hit To Freight, But
Shock For Passenger Segment
EBITDA Evolution
1,600
– For freight transportation, we expect
1,200 EBITDA recovery to pre-COVID levels in
late 2021-2022, depending on global
Bil. RUB
800
commodities markets and OPEC+.
400
– COVID-19-related mobility restrictions,
0 social distancing, and behavioral
2014 2015 2016 2017 2018 2019 2020f 2021f 2022f changes hurt the passenger segment
significantly more than the freight
sector, and will result in longer
Funds From Operations To Debt recovery.
60
50
– The freight segment has been
40
moderately hit by the pandemic’s
fallout, with freight volumes up to 10%
%
30
20
lower in 2020.
10
0
2014 2015 2016 2017 2018 2019 2020f 2021f 2022f
As of October 2020. RUB—Russian ruble. f--Forecast. Source: S&P Global Ratings.
19Infra. & Trans. | Recovery Of Public Transport Will Takes Years
Rail Traffic Per Year Compared With 2019 Base
– Recovery in passenger traffic to 2019 level is
% change versus 2019
Optimistic Pessimistic
100 100 unlikely until 2023.
100 90
80
80 100 95
– The extent of government supporting measures –
60
55 80 together with recovery trends – are key factors for
70
the ratings.
40
40
20 – Availability of vaccine is fundamental for recovery.
2019 2020f 2021f 2022f 2023f
Source: S&P Global Ratings, as of October 2020. – We expect rail travel in Russia to rebound faster
than air, largely because tickets are more
Global Air Traffic Per Year Compared With 2019 Base affordable.
– Air traffic in Russia is likely to recover faster than
% change versus 2019
Optimistic Pessimistic
120 100 that of global peers. Local flights were at about
90
100 80 half of 2019 volumes as of September 2020.
80 100 60
60 85
35 70
40
20 40
0 20
2019 2020f 2021f 2022f 2023f
Source: S&P Global Ratings, as of November 2020.
20Infra. & Trans. (continued)
Capital Expenditure
– Considerable capex in the sector despite the pandemic will
1,500
translate to heavily negative FOCF.
– Government is motivating companies to maintain investments by
Bil. RUB
1,000
proposing different compensation options from the state.
500
– State support will not fully mitigate the shock from the
pandemic.
0
2014 2015 2016 2017 2018 2019 2020f 2021f 2022f
Free Operating Cash Flow Dividends
2014 2015 2016 2017 2018 2019 2020f 2021f 2022f
150
0
Bil. RUB
(150) 100
Bil. RUB
(300)
50
(450)
(600) 0
2014 2015 2016 2017 2018 2019 2020f 2021f 2022f
As of October 2020. RUB—Russian ruble. f--Forecast. Source: S&P Global Ratings.
21Regulated Utilities | Financials Are Comfortable Despite Volume Dip
EBITDA Evolution
350
300 – Regulatory framework should provide
250
sufficiently resilient to the economic
Bil. RUB
200
150 downturn.
100
50 – Tariff increases continue, in contrast to
0 the 2014 freeze.
2014 2015 2016 2017 2018 2019 2020f 2021f 2022f
– Capex cuts and pre-existing financial
headroom will help offset missing
revenue on lower volumes.
Funds From Operations To Debt
70
60
50
40
%
30
20
10
0
2014 2015 2016 2017 2018 2019 2020f 2021f 2022f
As of October 2020. RUB—Russian ruble. f--forecast. Source: S&P Global Ratings.
22Regulated Utilities (continued)
Capital Expenditure
400
– We expect utilities to offset lower 2020 revenue with capex cuts
300 or delays.
Bil. RUB
200 – We don’t expect any meaningful reduction in dividends, given the
government’s 50% payout target and already low market
100
capitalization.
0
2014 2015 2016 2017 2018 2019 2020f 2021f 2022f
Free Operating Cash Flow Dividends
40 150
0
100
Bil. RUB
Bil. RUB
(40)
50
(80)
(120) 0
2014 2015 2016 2017 2018 2019 2020f 2021f 2022f 2014 2015 2016 2017 2018 2019 2020f 2021f 2022f
As of October 2020. F--Forecast. Source: S&P Global Ratings.
23Power Generation | Lower Capacity Revenue, But Leverage Is Low
EBITDA Evolution
Atomic Energy Power Corp. Other – Lower capacity revenue after
500 CSA-1* expiration should
400
pressure thermal EBITDA post-
2020.
Bil. RUB
300
200 – New capacity in nuclear and
100 hydro support EBITDA growth.
0
2014 2015 2016 2017 2018 2019 2020f 2021f 2022f – Leverage will remain low, due
to moderate capex on
Funds From Operation To Debt technological freeze and
demand constraints.
Atomic Energy Power Corp. Other
300 – Gradually increasing focus on
250 reducing greenhouse gases.
200
150
%
100
50
0
2014 2015 2016 2017 2018 2019 2020f 2021f 2022f
*CSA--Capacity Supply Agreement As of October 2020. f--forecast. Source: S&P Global Ratings.
24Power Generation (continued)
Capital Expenditures
Atomic Energy Power Corp. Other
600
– Higher dividends will be affordable, thanks to relatively low
500
leverage and only modest capex plans aside from the significant
400 spending on new nuclear construction abroad that will be partly
300 prepaid by the government.
200
100
0
2014 2015 2016 2017 2018 2019 2020f 2021f 2022f
Free Operating Cash Flow Dividends
Atomic Energy Power Corp. Other Atomic Energy Power Corp. Other
200 90
100
60
0
30
(100)
(200) 0
2014 2015 2016 2017 2018 2019 2020f 2021f 2022f 2014 2015 2016 2017 2018 2019 2020f 2021f 2022f
As of October 2020. f--forecast. Source: S&P Global Ratings.
25Homebuilders | Subsidized Mortgages Support The Sector
EBITDA Evolution
40 – Subsidized mortgages will support new
35
housing demand until mid-2021, volumes
30
25
and prices.
20
– Supply of new houses will somewhat
15
10 contract in 2020 due to COVID-19.
5
0
– New project finance loans will increase
2014 2015 2016 2017 2018 2019 2020f 2021f 2022f leverage of developers.
– Increasing prices will support margins, likely
Funds From Operations To Debt balancing COVID-19 expenses.
60
50
40
30
%
20
10
0
2014 2015 2016 2017 2018 2019 2020f 2021f 2022f
As of October 2020. RUB—Russian ruble. F--Forecast. Source: S&P Global Ratings.
26Homebuilders (continued)
New Housing Under Construction New Housing Prices To Increase
Sales not open Sold Not sold
Growth as % change of nominal prices to previous month
120 2.0
1.5
Mil. sqm
80
1.0
%
40
0.5
0
Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20
0.0
Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20
Free Operating Cash Flow
40
30 – FOCF will contract due to negative working capital swings as
20 homebuyers’ cash will be restricted in escrow accounts.
10
0 – The effect will be partly mitigated by lower interest rates.
(10)
(20) – Dividends will increase, but will remain within the financial policy.
(30)
(40)
2014 2015 2016 2017 2018 2019 2020f 2021f 2022f
As of October 2020. sqm—Square meters. RUB—Russian ruble. f--Forecast. FOCF--Free operating cash flow. Source: S&P Global Ratings, Dom.rf.
27Retail | High Degree Of Resilience To COVID-19 Pressures
EBITDA Evolution
600 – Food retail and pharmaceuticals benefit
from robust demand.
400
– Large retailers expand their presence and
experiment with store formats to attract
200 diverse customer groups.
0
– Discounter formats are expanding on the
2014 2015 2016 2017 2018 2019 2020f 2021f 2022f back of lower household income.
– E-commerce will increasingly scale up,
Funds From Operations To Debt challenging supply management
120 capabilities and potentially requiring more
100 investments in working capital.
80
60
%
40
20
0
2014 2015 2016 2017 2018 2019 2020f 2021f 2022f
As of October 2020. RUB--Russian ruble. f--Forecast. Source: S&P Global Ratings.
28Retail (continued)
Capital Expenditures
200
– Capital investments growth to resume in 2021-2022.
150
100
– Dividends may increase, but will remain within existing financial
policy.
50
0
2014 2015 2016 2017 2018 2019 2020f 2021f 2022f
Free Operating Cash Flow Dividends
200 100
150 80
60
100
40
50
20
0
2014 2015 2016 2017 2018 2019 2020f 2021f 2022f 0
(50) 2014 2015 2016 2017 2018 2019 2020f 2021f 2022f
As of October 2020. RUB—Russian ruble. f--Forecast. Source: S&P Global Ratings.
29Telecom | Digitalization & Tariff Increases Support Performance
EBITDA Evolution
– The industry has been relatively resilient to the
1000
impact of the pandemic, with pockets of vulnerability
800 like roaming or equipment sales.
600
– The competitive environment for the mobile sector is
400 becoming more rational, with tariff increases.
200 – Telecoms are focusing on areas beyond connectivity,
0 with efforts to create an ecosystem of digital
2014 2015 2016 2017 2018 2019 2020f 2021f 2022f services to reduce churn and increase the average
return per user.
Funds From Operations To Debt
– Operating performance is supported by cloud and
50 data center services, as well as corporate business
40 solutions addressing demand for cybersecurity and
30 remote working solutions.
%
20
– Leverage has remained broadly stable at a moderate
10 level.
0
2014 2015 2016 2017 2018 2019 2020f 2021f 2022f
As of October 2020. f--Forecast. Source: S&P Global Ratings.
30Telecom (continued)
Capital Expenditures
500
– We expect capex will increase only moderately in next two years
400
as the rollout of 5G networks in scale is still years away.
300
200
– Digital services and corporate business solutions should boost
FOCF.
100
0 – Dividends/share buybacks continue to absorb most of cash flows
2014 2015 2016 2017 2018 2019 2020f 2021f 2022f
Free Operating Cash Flow Dividends
300 250
250 200
200
150
150
100
100
50 50
0 0
2014 2015 2016 2017 2018 2019 2020f 2021f 2022f 2014 2015 2016 2017 2018 2019 2020f 2021f 2022f
As of October 2020. RUB--Russian ruble. f--Forecast. FOCF--Free operating cash flow. Source: S&P Global Ratings.
31Analytical Contacts
Alexander Griaznov Elena Anankina Mikhail Davydov
Director Senior Director Associate Director
alexander.griaznov@spglobal.com elena.anankina@spglobal.com mikhail.davydov@spglobal.com
32Analytical Contacts
Anna Brusinets Sergei Gorin
Associate Director Associate Director
Anna.Brusinets@spglobal.com Sergei.Gorin@spglobal.com
Anton Geyze Svetlana Ashchepkova
Associate Director Associate Director
Anton.Geyze@spglobal.com Svetlana.Ashchepkova@spglobal.com
33Analytical Contacts
Ilya Tafintsev Igor Golubnichy
Rating Analyst Rating Analyst
Ilya.Tafintsev@spglobal.com Igor.Golubnichy@spglobal.com
34Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved.
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