МОSCOW (MRC) -- Moody's Investors Service has today downgraded Sistema Joint Stock Financial Corporation's (Sistema) corporate family rating (CFR) to B1 from Ba2 and probability of default rating (PDR) to B1-PD from Ba2-PD, as per the agency press-release.
The outlook on all ratings is negative. This concludes the review for downgrade initiated by Moody's on 18 September 2014.
The downgrade reflects the imminent withdrawal of Bashneft's (Ba2 on review for downgrade) shares from Sistema's ownership as a result of the Moscow Arbitrage Court's decision to return the shares to the Russian Federation, and the risk of further negative pressure related to this action and/or continuing investigation of Bashneft's privatisation. The court's decision anticipates no compensation to Sistema from the state. The company indicated that it will not appeal the decision, but will claim the recovery of its damages from entities from which it acquired Bashneft's shares, or their successors. The majority shareholder Mr Evtushenkov remains under house arrest.
Moody's had considered withdrawing Bashneft with no compensation as one of the most extreme outcomes when the ratings were placed on review in September. Sistema's decision not to appeal may be a pragmatic one which successfully brings this issue to closure without further negative consequences. However, the fact that the majority shareholder Mr Evtushenkov remains under house arrest suggests that the issue may not yet be fully closed. There is a possibility of further penalties or claims against Sistema, not least in respect of dividends that have been received since the Bashneft acquisition, which according to Sistema amounted to RUB120 billion (around USD2.6 billion at the current exchange rate).
If negative pressure intensifies, Sistema could struggle to maintain its formerly strong financial market access and debt financing relationships.