OREANDA-NEWS. National Rating Agency has lowered its national scale credit rating on Volga Engineering Group СJSC (VEG). At the same time, the rating has been placed on NRA’s Watchlist with indefinite implications.

The rating downgrade reflects the company’s debt burden increase in 2H 2014 (as a result of accepting a guarantee for a partner company and taking on its debt); losses for 2014 and 1Q 2015; and negative equity position as of the end of 1Q 2015. We also note that the company’s plan to increase its authorized capital was not implemented in 2014, but remains in place. VEG gets most of its revenue from large contracts, which it wins on a tender basis. Since the contracts are short-term, the company’s annual performance depends on how successful the tendering process is. The Watchlist placement is due to the fact that VEG’s portfolio of orders for this year is currently empty. There are no projects carried forward to 2015, while the next tenders, much awaited by the company, are scheduled for 3-4Q 2015. This means that in the first six months of 2015 VEG will be working at a minimum capacity. The company’s rating is under review from the time of Watchlist placement with indefinite implications. NRA will take appropriate rating actions in September 2015, after getting new information about the status of VEG’s portfolio of orders, measures taken to reduce the debt burden and the company’s prospects.

The rating is supported by the company’s solid market experience, strong market position and extensive portfolio of projects completed for large clients. Additionally, NRA notes VEG’s plan to considerably reduce its debt burden by year-end 2015 after executing anticipated contracts.