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Aug 29 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings says that JSC Sukhoi Civil Aircraft Corporation’s (SCAC, BB/Stable) recently reported H113 financial results under Russian accounting standards, whilst worse than expected and likely resulting in breaches of financial covenants, will have no immediate impact on the group’s ratings of the group for three key reasons.
Firstly, SCAC’s ratings are linked to those of its ultimate majority shareholder, the Russian Federation (BBB/Stable). Due to its shareholding, Fitch expects SCAC to continue to receive indirect support from the Russian state via additional equity injections over and above what has already been contributed to date. However, any waning, or perceived waning, of that support is likely to lead to SCAC’s ratings being further notched down from those of the sovereign.
Secondly, SCAC has regularly breached its loans’ financial covenants in recent years and has always successfully obtained waivers to them. Fitch believes that this will also occur in this instance, should a breach of covenant be confirmed. The breaches, stemming from ongoing operating losses leading to a weak equity position, are the result of a slower than expected ramp up in production of the flagship SSJ 100 regional jet as well as cost overruns related to the initial production stage of the aircraft. Fitch expects SCAC to continue to incur losses in 2013 and 2014 as a result of these issues, before generating a modest operating profit from 2015 onwards.
Thirdly, the company has adequate liquidity and is assumed to continue to have access to new sources of funding; therefore it is unlikely to face immediate debt servicing pressure. At end-H113, SCAC had cash of approximately USD26m and available credit lines of over USD300m. The H212 acquired credit line of USD1bn from Vnesheconombank as well as the expected shareholder equity injections of around USD200m in 2013 serve as evidence of ongoing operational support the group is receiving.
In the next two months, Fitch will meet with SCAC’s management to discuss the expected ongoing support from the Russian State, as well as the group’s operating plan and liquidity position. Negative rating action, although not expected at this stage, may follow if Fitch believes that previous assumptions relating to these factors are no longer valid.