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S&P Revises HMS Group Corporate Rating

Moscow, Russia, HMS Group (LSE: HMSG), the leading pump and compressor manufacturer, supplier of turnkey process engineering packages  and provider of flow control solutions and related services in Russia and the CIS, announces that Standard & Poor’s Rating Services lowered the long-term corporate rating  of the company from “B” to “B-“ and placed it on CreditWatch with negative implications. Also, S&P downgraded Rub 5.1bn notes issued by HMS’ subsidiary CJSC Hydromashservice to “CCC+” and placed them on CreditWatch negative.

According to S&P, the downgrade reflects increasing refinancing risks arising from the Rub 2.1bn unsecured bond maturity in February 2015. The agency assesses HMS’ liquidity position as “weak”. It applies a formal approach:  absence of signed credit agreements 3 months before debt redemption.  Meanwhile, currently, the company negotiates credit issues with a number of banks and has an adequate liquidity cushion, including Rub 1bn in cash and cash equivalents and Rub 1.2bn in undrawn available credit lines, for its bonds refinancing.

The rating action also reflects HMS’ “significant working capital swings”. In 2015, the company expects an improvement in its working capital as a result of completion of some large-scale projects.

The agency states that “HMS currently faces tough operating conditions, weak economic prospects in Russia, and geopolitical tensions, which <…> may lead to more restricted access to bank and debt capital markets”.  Though HMS is not immune to challenges in Russia’s oil and gas sector and geopolitical risks, its strong fundamentals and effective business model ensure a sustainable profitability in the current weaker macroeconomic environment, and the management expects positive free operating cash flow generation in the nearest 12 months.

HMS Group is the leading pump and compressor manufacturer, as well as provider of flow control solutions and related services to the oil and gas, nuclear and thermal power generation and water utilities sectors in Russia and the CIS. HMS Group’s products are mission-critical elements of projects across a diverse range of industries. It has participated in a number of large-scale infrastructure projects in Russia, including providing pumps and modular equipment to the Vankor oil field and pumping stations on recent trunk pipelines projects linking Russia’s core oil producing areas to export ports on the Pacific Ocean and Baltic Sea. HMS Group’s global depositary receipts (“GDRs”) are listed under the symbol “HMSG” on the London Stock Exchange.

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