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Posted: April 30, 2010
Standard and Poor's Revises Russian Corporation of Nanotechnologies' Outlook To Stable
(Nanowerk News) Standard & Poor’s expects strong ongoing state support to be provided to Russian Corporation of Nanotechnologies (RUSNANO) in the next few years. The agency expects a "high" probability of extraordinary timely government support if necessary. Therefore the outlook on RUSNANO was revised to stable from negative and affirmed the 'BB+' long-term, 'B' short-term, and 'ruAA+' national scale ratings on RUSNANO.
RUSNANO is a state investment institution established by the government of the Russian Federation (foreign currency BBB/Stable/A-3; local currency BBB+/Stable/A-2; Russia national scale 'ruAAA'). At the same time we affirmed our 'BB+' long-term and 'B' short-term issuer credit ratings and our 'ruAA+' Russia national scale rating on RUSNANO.
"The outlook revision reflects strong ongoing support expected from the Russian government at least until 2012 in the form of capital injections and guarantees until 2015," said Standard & Poor's credit analyst Boris Kopeykin.
S&P uses its criteria for government-related entities in rating RUSNANO. In spite of the recent government decision to change RUSNANO's legal status from a state corporation to a joint-stock company (in 2010-2011), we believe there is a "high" likelihood that it would receive timely, extraordinary support from the state in case of financial distress. Our opinion is based on the following:
–Important role for the government of Russia. The government created RUSNANO to support state policies on promoting economic diversification into innovative sectors. The corporation is supposed to invest in projects that apply nanotechnology and promote such investments in the market. It is one of the main tools of economic diversification in high-tech industries now used by the government. RUSNANO selects and provides financing in the form of capital injections, loans, and guarantees to start-ups in the sector. The government has approved regular large equity injections for RUSNANO until 2012. The company's capital is likely to reach Russian ruble (RUB) 130 billion (almost $5 billion at that moment$)-?the equivalent of about 0.3% of Russia's GDP--by year-end 2012;
–Very strong link with the Russian government, its full owner. RUSNANO will be transformed into a joint-stock company in 2010-2011, but privatization is not expected. The government is tightly monitoring RUSNANO, and several Russian ministers sit on the board. The government announced its plans to guarantee RUSNANO's expected bond issues of RUB182 billion in 2010-2015, including RUB53 billion in 2010. Politically it is a very visible entity.The stable outlook balances our expectations of a "high" probability of timely extraordinary support and currently strong ongoing support with the uncertainty regarding RUSNANO's relationship with the state in the longer term, and still further uncertainties about the viability of the applied business model.
"Confirmation of the government's strong ongoing support to the company, and of the availability of timely extraordinary support to the company in an emergency in the longer term, might result in an upgrade," said Mr. Kopeykin.
In contrast, a downgrade might result if S&P observes signs of weakening ongoing or lower chances of timely extraordinary support. Additional pressure might come from larger-than-expected borrowings, particularly borrowings with only up to three-year maturities, and deterioration of the liquidity position, which agency doesn't currently expect.