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Fitch Assigns Russian Helicopters USD500m Bond 'BB-(EXP)' Rating

Fitch Ratings has assigned Russian Helicopters JSC (RH) a senior unsecured rating of 'BB-' and the company's proposed 2018 bond of up to USD500m an expected rating of 'BB-(EXP)'. The final rating on the notes is contingent upon the receipt of final documentation conforming to information already received, the rating agency reported.

The proceeds of the notes will be used for refinancing existing debt and for general corporate purposes. The notes will constitute direct, unsecured and unconditional obligations of the issuer, Russian Helicopters Finance Limited, and its parent company guarantor, RH.

Fitch has assigned the expected new bond rating one notch below that of the Issuer Default Rating (IDR) as a result of structural subordination. Given the significant level of secured debt on the company's balance sheet (approximately 70% of total debt at end-2012), and the high overall leverage position of the group, Fitch believes that a one-notch differential between the IDR and the unsecured debt is appropriate. Furthermore, as the new bonds will not benefit from upstream guarantees of any of the groups operating companies, the notes will rank behind other unsecured debt issued by these entities.

It will be recalled that on 25 April 2013, Fitch downgraded RH's Long-Term IDR to 'BB', from 'BB+'. The downgrade reflected Fitch's view that contrary to our prior expectations, the company failed to reduce leverage below the downgrade guideline of 3.5x at end-2012. Furthermore, Fitch believes the company's leverage is unlikely to improve materially in the short term and is no longer consistent with the expectations of a 'BB' standalone rating for this sector.

RH's IDR benefits from a one-notch uplift from the standalone rating of 'BB-', based on the support given to the company by the Russian state. Any change to the nature of that support, whether real or perceived, may have a rating impact.

RH's financial profile, on balance, is indicative of a mid-strength non-investment grade company. Whilst earnings and FFO margins are in line with industry peers, FCF generation, leverage and liquidity are weak. These financial metrics will be key drivers of future rating actions.

The company maintains a strong market position, with a globally dominant role in some segments, such as attack or heavy-lift helicopters. These are high-priced items on which RH is able to generate good returns owing to its efficient production and low labour costs. Nevertheless, the company is only strong in certain types of helicopters, remains heavily reliant on the Russian Ministry of Defence for a significant portion of its business, and its service business is underdeveloped compared to its peers.

OJSC Russian Helicopters (tax number: 7731559044) is a subsidiary of OJSC OPK Oboronprom which itself is part of the corporation Rostekhnologii. It controls and manages the following helicopter industry enterprises: Mil Moscow Helicopter Plant, Kamov, Ulan-Ude Aviation Plant, Kazan Helicopters, Rostvertol, Progress Arsenyev Aviation Company named after N.I. Sazykin, Kumertau Aviation Production Enterprise, Stupino Machine Production Plant, Reduktor-PM, Novosibirsk Aircraft Repairing Plant and Helicopter Service Company.

Net profit (IFRS) of OJSC Russian Helicopters for H1 2012 increased by 12.93% to RUB 3.057 billion from RUB 2.707 billion for H1 2011. Revenue increased by 42.3% to RUB 60.292 billion from RUB 42.369 billion, operating profit by 17.86% to RUB 6.434 billion from RUB 5.459 billion, EBITDA by 36.29% to RUB 9.153 billion from RUB 6.716 billion. EBITDA margin was 15.2% against 15.9% the year before.

According to the information and retrieval system DataCapital, RAS net profit of OJSC Russian Helicopters for 2012 decreased 5.2-fold to RUB 3.662 billion from RUB 19.052 billion for 2011. Revenue grew by 18.43% to RUB 1.896 billion from RUB 1.601 billion, sales loss was RUB 850.019 million against a profit of RUB 175.837 million, pre-tax profit decreased 5.8-fold to RUB 3.312 billion from RUB 19.205 billion

"AK&M", 13.05.2013


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