S&P: Russian Regional Water Utility Vodokanal St. Petersburg Outlook Revised To Stable; 'BB/B' Ratings Affirmed
We also affirmed the 'ruAA' Russia national scale rating on VKSPB.
The rating action on VKSPB follows a similar rating action on Russia (see "Russian Federation Outlook Revised To Stable From Negative On Abating External Risks; Ratings Affirmed," published Sept. 16, 2016, on RatingsDirect). We think that the sovereign outlook revision is position for our view of the City of St. Petersburg's credit quality. Furthermore, we still believe there is a very high likelihood that the city government would provide VKSPB with timely and sufficient extraordinary support in the event of financial distress.
We continue to assess VKSPB's stand-alone credit profile (SACP) at 'bb-'.
The stable outlook reflects our view of St. Petersburg's creditworthiness. We also factor in our belief that financial risks associated with VKSPB's ambitious investment program will continue to be mitigated by its monopoly position as the water service provider in St. Petersburg, as well as strong ongoing support from the city government, including regular equity injections and co-financing of capital expenditures.
We could take a positive rating action on VKSPB if we see improvements in St. Petersburg's credit quality, all else being equal.
We could lower the rating if, in our view, St. Petersburg's credit quality were to weaken, all else being equal.
We could also lower the rating if we revised down our assessment of the company's SACP by one notch. That might result from aggressive debt accumulation and weak financial and operational results, leading to debt to EBITDA significantly exceeding 1.5x and funds from operations to debt falling substantially below 60% without a sound recovery plan for the next six-12 months. Downward pressure might also stem from deteriorating liquidity or maturity profiles.