S&P downgrades HMS Hydraulic

Standard & Poor's said it lowered the long-term corporate credit rating on HMS Hydraulic Machines and Systems Group plc to B from B+ and placed it on CreditWatch with negative implications.

S&P also said it lowered the Russia national scale rating on HMS to RuA from RuA+ and placed it on CreditWatch negative.

The agency also said it lowered the rating on the RUB 6 billion notes issued by HMS Hydraulic subsidiary, CJSC Hydromashservice, to B- from B and placed it on CreditWatch negative. S&P also lowered the Russia national scale rating on these notes to RuA- from RuA. The recovery rating on the notes is unchanged at 5, indicating 10% to 30% expected default recovery.

The downgrades reflect a view that the company's credit metrics and liquidity position weakened in the first half of 2013, S&P said.

The group's cash flow generation deteriorated significantly as a result of unexpectedly high working capital fluctuations, the agency said.

Liquidity is under further pressure from tightening headroom under the maintenance covenants on HMS Hydraulic's loan with Sberbank, S&P added.

Its profitability was mainly affected by the lack of the large-scale profitable contracts that benefited the group in 2011, the agency said.

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