OREANDA-NEWS. Fitch Ratings says that the current ratings of DME Ltd (DME, Domodedovo airport) and senior unsecured notes issued DME Airport Ltd have some headroom to accommodate negative economic trends in Russia. However, the situation is in flux and Fitch will continue to monitor the developments and comment accordingly. Deterioration in the operating performance beyond Fitch's rating case parameters may lead to negative rating action.

The ratings are capped at 'BB+' due to the concerns over corporate governance and regulatory uncertainty, although the airport's underlying profile was considered stronger when the ratings were assigned. In our view, at the current rating level DME can withstand sizeable stresses on traffic levels as well as higher debt service payments and higher leverage following severe rouble devaluation to approximately 60 RUB/USD.

Fitch was already factoring in a decline in traffic to 31m passengers in 2015 under our rating case. This represents a 6% decline from the level expected to be achieved for the whole of 2014.

Fitch expects economic decline in Russia in 2015 and a reduction in passenger traffic at Domodedovo airport in Moscow. Rouble devaluation and expected economic recession in 2015 will significantly reduce propensity to fly, particularly with respect to international travel due to the lower purchasing power of Russian tourists travelling abroad. International traffic currently makes about half of total traffic at DME. Fitch expects domestic traffic to decline as well, but it should be less affected.

DME is also affected by rouble devaluation as all of its debt obligations are denominated in USD/EUR. This is partially mitigated by the natural hedge as 45% of the airport's revenues are currently collected in EUR/USD or are EUR-linked, while most operating and capex costs are in roubles. Foreign currency revenues are generated through regulated USD tariffs paid by foreign airlines, some auxiliary aviation services as well as retail concession contracts.

Fitch expects the share of foreign currency revenues to decline in 2015 due to lower international traffic and possible pressure to switch to rouble-based contracts for retail concessions. But even with a significant decline of the share of foreign currency revenues to a hypothetical level at 20%, they should be sufficient to cover the company's foreign currency debt service commitments during 2015-2017. Senior unsecured notes of USD300m mature in November 2018 when the bullet payment will be due.