OREANDA-NEWS. S&P Global Ratings today revised its outlook on the Russian vertically integrated nuclear power producer Atomic Energy Power Corp. (AEPC) to stable from negative.

At the same time, we affirmed our 'BB+/B' long - and short-term corporate credit ratings and 'ruAA+' Russia national scale rating on AEPC.

The outlook revision on AEPC follows our similar rating action on the sovereign (see "Russian Federation Outlook Revised To Stable From Negative On Abating External Risks; Ratings Affirmed," published Sept. 16, 2016, on RatingsDirect). In addition, it takes into account our expectation of the company's solid stand-alone financial metrics.

We have also revised upward our assessment of AEPC's stand-alone credit profile (SACP) to 'bb+' from 'bb', based on the company's stronger current and expected financial metrics, compared with our previous expectations.

We think that new capacity additions will support stronger EBITDA generation in 2017-2018, which combined with currently significant cash, translates into strong metrics. We consequently anticipate S&P Global Ratings-adjusted debt-to-EBITDA ratio lower than 1.5x in the coming years. We currently incorporate in our base case AEPC's lower investments into nuclear power unit construction in Russia, compared with our previous expectations, which should lead to lower needs for new borrowings. However, we think AEPC's leverage might be higher than our base case suggests, given the group's large number of new projects over the next few years and uncertainty related to availability of government funds to finance the projects, as well as possible pressure on future dividend flows.

We continue to view AEPC's business risk profile as fair, supported by AEPC's position as the world's third-largest uranium producer. It has an estimated 36% share in uranium enrichment services (including services to global peers), and a monopoly in the domestic nuclear power industry. Still, AEPC is exposed to regulatory, political, operational, and construction-related risks in the nuclear industry, which may make its future profits more volatile and uncertain, in our view.

As a government-related entity, AEPC will in our view continue to benefit from a very high likelihood of timely and sufficient government support, if needed. We base our opinion on its management of Russia's civil nuclear industry and provision of about 17% of the country's electricity supply. Moreover, the company cannot be privatized without a change in legislation, and the government closely monitors its strategy and operations.

The stable outlook on AEPC reflects our outlook on Russia. We expect AEPC will continue to benefit from a very high likelihood of extraordinary government support while maintaining a solid operating and financial performance.

We see limited ratings upside for AEPC at the current rating level. This is because we do not expect to rate the company above the foreign currency rating on Russia, given AEPC's very strong link with the government and our opinion that the company's SACP does not exceed our foreign currency sovereign rating.

We might lower our ratings on AEPC if we were to downgrade Russia, or if the company's SACP deteriorated to 'b+' or below from 'bb+' currently. We regard these scenarios as unlikely, however.