OREANDA-NEWS. Fitch Ratings has affirmed Russia-based Ventrelt Holdings Ltd's Long-term foreign currency Issuer Default Rating (IDR) at 'BB-' with Stable Outlook.

The ratings of Ventrelt, a leading private water and waste water operator in Russia, reflect the company's long-term leasing and concession agreements with municipalities to provide essential infrastructure services, its fairly moderate leverage and complex existing funding structure.

The ratings are constrained by Ventrelt's limited size and diversification relative to larger peers and 'BB' rated Russian companies, as well as an evolving regulatory framework for concession agreements and tariff-setting. In addition, its capex relative to cash flow is sizeable and results in negative free cash flows (FCF) while fairly moderate cash collection rates result in working capital outflow.

Ventrelt had short-term debt of around RUB1.2bn against cash and cash equivalents of RUB2bn as of 1 August 2014. In addition, a major part of outstanding debt is represented by RUB3bn 9.6% bonds maturing in November 2015. This creates refinancing risks for the company in late 2015. The company plans to issue new bonds or raise a loan, for which it already has a preliminary agreement.

Fitch expects Ventrelt's cash flows from operation to continue to be insufficient to fully cover capex, resulting in negative FCF, despite connection fee offsetting some of the capex and a continued zero dividend policy. Failure by the company to secure refinancing by end-2014 may result in negative rating action.

RATING SENSITIVITIES
Positive: Future developments that may, individually or collectively, lead to positive rating action, include:
- Increased revenue and earnings visibility following the implementation of long-term tariffs
- Sustainable positive free cash flow generation

Negative: Future developments that may, individually or collectively, lead to negative rating action, include:
- An increase in leverage above 4x net debt/connection-fee adjusted EBITDA to fund additional capital expenditure or acquisitions
- A sustained reduction in cash generation through a worsening operating performance or deteriorating cash collection.