OREANDA-NEWS. Fitch Ratings says rated Russian utilities have sufficient financial headroom to withstand the impact of the economic downturn and weaker operating environment, except for Ventrelt Holdings Ltd (BB-/Stable) and JSC RusHydro (BB+/Negative).

We expect the latter two companies to be in breach of our negative rating guidelines in 2015-2016 due to their intensive capex programmes which require debt funding. RusHydro's ratings are on Negative Outlook and Ventrelt's ratings are under pressure.

In our revised financial projections for seven rated Russian utilities leverage metrics are expected to rise on average by 0.6x in 2015 compared with 2014, and coverage ratios to decline on average by 1.6x. We forecast EBITDA to decline on average by 5% in 2015 compared with our previous projections. This is due to an expected contraction in Russia's GDP of 4% in 2015, elevated inflation which we do not expect to be fully reflected in electricity price increases, and high interest rates.

We forecast that the leverage metrics of most rated Russian utilities are likely to remain within Fitch's negative rating guidelines in 2015 and 2016. In contrast, the coverage ratios of almost 60% of the rated utilities are likely to be in breach of Fitch's negative rating guidelines in 2015-2016 due to high interest rates (assumed at 15%). We do not anticipate the breach of coverage ratios on its own to lead to negative rating action as we analyse it in conjunction with other metrics.

The Russian utilities' liquidity profile is adequate with only two companies demonstrating a liquidity shortfall - RusHydro in 2015-2016, and Ventrelt in 2016. However, this satisfactory liquidity is achieved mainly through credit lines from Russian banks, which exposes Russian utilities to the Russian banking system's health.