Fitch Downgrades Russia's RussNeft to 'RD'; Upgrades to 'CC'

London - 08 Oct 2020: Fitch Ratings has downgraded PJSC RussNeft's Long-Term Issuer Default Rating (IDR) to 'RD' (Restricted Default) from 'C' on completion of the restructuring of the 2020 bank debt maturities. Fitch has then upgraded the rating to 'CC' as the repayment risk is still probable.

The main creditor of RussNeft, CQUR Bank LLC, has agreed to amend the 2020 payment schedule of its USD1,172 million loan by relieving it of 2020 principal payments of USD91 million, including already missed payments, and adding them to the balloon payment due in 2026. The loan restructuring represents a Distressed Debt Exchange (DDE) as defined by our criteria. The restructuring only marginally improves RussNeft's weak liquidity position and we believe that under our base-case assumptions the liquidity event appears probable in the next 12 months, which supports the 'CC' rating.

We understand from management that RussNeft will continue to re-negotiate the loan. With principal repayments resuming in 2021, we project RussNeft to have very high repayment risk, generate negative free cash flow (FCF) in 2020-2021, and its leverage is high. RussNeft's ability to attract external funding is constrained by the loan agreement with its major creditor.

RussNeft's loan in question was originally provided by VTB. In March 2020, the loan was transferred to CQUR Bank LLC (domiciled in Qatar and where VTB has a minority stake), which became RussNeft's largest creditor.