ACRA affirms А(RU) to PJSC YATEC, outlook Stable, and to its bond (RU000A102B48), and assigns A(RU) to the bond (RU000A102ZH2) issued by PJSC YATEC

The credit rating of PJSC YATEC (hereinafter, the Company, YATEC) is based on the Company's very strong market position, very strong business profile, and good liquidity assessment. At the same time, the very low availability and diversification of sales markets, production concentration on a single gas field, small size of the Company, very weak cash flow, and medium coverage have a restraining effect on the rating.

YATEC is a non-state gas company, which natural gas reserves exceed 390 bcm and natural gas resources exceed 469 bcm. The Company's share of gas produced in the Republic of Sakha (Yakutia) (hereinafter, Yakutia) is 86%. The Company holds rights for seven license areas: Srednevilyuiskoe, Mastakhskoe, Tolonskoe, Tymtaydakhskoe, Severnoye, Yuzhnoye, and Mayskoye.

Key rating assessment factors

Very strong assessments of market position and business profile. YATEC, which occupies 86% of the regional natural gas production market, is the only company supplying gas to the central regions of Yakutia and the city of Yakutsk. Moreover, the Company is the only manufacturer of motor fuel in the Region. The very strong business profile of the Company is due to the very low production costs and very high adequacy of the resource base (over 200 years of production at the current pace).

The very weak assessment of geographical diversification is due to the very low availability of sales markets and the concentration of production on a single gas field. Yakutia is the Company’s only natural gas sales market. The Company also supplies its products, including gas condensate, liquefied hydrocarbon gas, and motor fuel, to Sakhalin Region, Primorsky Krai, Khabarovsk Krai, Amur Region, Irkutsk Region, Novosibirsk Region, Kemerovo Region, Altai Krai, and Jewish Autonomous Region. Today, the only operational field is Srednevilyuiskoe. In December 2020, test operations were resumed at the Mastakhskoye field.

Medium coverage. According to ACRA's estimates for 2019–2023, the weighted average ratio of total debt to FFO before net interest payments is expected at 3.2x. The qualitative assessment of leverage is very high since the debt repayment schedule is very comfortable. ACRA expects that in 2021, all amounts due under the loans granted by shareholders will be extinguished in a non-cash form, so that, at the end of the year, all of the Company's liabilities will be represented solely by exchange-traded bonds. The Agency expects that the ratio of weighted average FFO before net interest payments to interest payments for the period 2019–2023 is expected at 5.6x.

Good liquidity and very weak cash flow. A peak of capital expenses expected in 2021–2022 has a significant impact on the assessment of cash flows. The Company’s FCF is expected to become negative in this period. At the same time, the liquidity assessment takes into account that a significant part of capital expenses will be allocated to implement a development program, which, in turn, may be delayed in case of need. The Agency also takes into account the expected sale of non-core assets, which may become an additional funding source for the Company's investment program.

Key assumptions

  • Company's annual gas production volume at 1.8 bcm in 2021–2023;
  • Gas tariffs to be indexed by 18% in the Republic in 2021 and by at least 3% in subsequent years;
  • Shareholder loans to be extinguished in a non-cash form in 2021.

Potential outlook or rating change factors

The Stable outlook assumes that the rating will most likely stay unchanged within the 12 to 18-month horizon.

A positive rating action may be prompted by:

  • Higher weighted average ratio of FFO before net interest payments
    to interest payments above 10х, and lower weighted average ratio of total debt to FFO before net interest payments below 2х, and FCF margin becoming positive.

A negative rating action may be prompted by:

  • A decline in the weighted average ratio of FFO before net interest payments
    to interest payments below 5х;
  • An increase in the weighted average ratio of total debt to FFO before net interest payments above 3.5х.

Rating components

Standalone creditworthiness assessment (SCA): a.

Adjustments: none.

Issue ratings

Uncertified non-convertible exchange-traded interest-bearing bond subject to centralized title registration issued by PJSC YATEC, series 001P-1 (RU000A102B48), maturity date: October 31, 2023, issue volume: RUB 4 bln — A(RU).

Key issue properties (RU000A102ZH2)

Borrower

PJSC YATEC

Issuer’s credit rating

A(RU), outlook Stable

Actual issuer

PJSC YATEC

Type of security

Uncertified non-convertible exchange-traded interest-bearing bond subject to centralized title registration, series 001P-2

Issue volume

RUB 5 bln

ISIN/Reg No.

RU000A102ZH2 / 4B02-02-20510-F-001P

Placement start date

April 12, 2021

Maturity date

April 7, 2025


Credit rating rationale. The issues represent senior unsecured debt of the Company. Due to the absence of either structural or contractual subordination of the issue, ACRA regards it as equal to other existing and future unsecured and unsubordinated debt obligations of the Company in terms of priority. According to ACRA’s methodology, the credit rating of the bond issue is equivalent to that of the Company, i.e. A(RU).

Regulatory disclosure

The credit rating has been assigned to PJSC YATEC under the national scale for the Russian Federation based on the Methodology for Credit Ratings Assignment to Non-Financial Corporations under the National Scale for the Russian Federation, and the Key Concepts Used by the Analytical Credit Rating Agency within the Scope of Its Rating Activities. To assign the credit ratings to the above bond issues the Methodology for Assigning Credit Ratings to Individual Issues of Financial Instruments Under the National Scale of the Russian Federation was also applied.

The credit ratings of PJSC YATEC and the series 001P-01 (RU000A102B48) bond issued by PJSC YATEC were published by ACRA for the first time on April 30, 2020 and November 3, 2020, respectively. The credit rating has been assigned to the series 001Р-02 (RU000A102ZH2) bond issued by PJSC YATEC for the first time. The credit rating of PJSC YATEC and its outlook and the credit ratings of bonds issued by PJSC YATEC are expected to be revised within one year following the publication date of this press release.

The credit ratings were assigned based on the data provided by PJSC YATEC, information from publicly available sources, as well as ACRA’s own databases. The credit ratings are solicited, and PJSC YATEC participated in their assignment.

In assigning the credit ratings, ACRA used only information, the quality and reliability of which was, in ACRA's opinion, appropriate and sufficient to apply the methodologies.

ACRA provided no additional services to PJSC YATEC. No conflicts of interest were discovered in the course of the rating process.

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