S&P puts Pyaterochka on negative watch

Standard & Poor's said it placed on CreditWatch with negative implications the BB- long-term corporate credit rating of Pyaterochka Holding NV, the BB- long-term corporate credit rating and ruAA- Russia national scale ratings of Pyaterochka's operating subsidiary OOO Agrotorg and the ruAA- Russia national scale ratings on the senior unsecured debt issued by related entity Pyaterochka Finance.

These actions follow Pyaterochka's announcement that it will acquire Russia's leading supermarket chain Perekrestok for $1.665 billion in a combination of $300 million cash and $1.365 billion equity. Alfa Group, the current owner of Perekrestok, will acquire a controlling stake in Pyaterochka as part of the transaction.

S&P said the CreditWatch placement reflects concerns pertaining to Pyaterochka's increased consolidated financial risk following the transaction. It is unclear whether this risk will be sufficiently offset by the expected positive business aspects of the combination, such as increased economies of scale, improved diversification and competitive position and potential operational synergies.

The agency estimated that the combined group's total debt to EBITDA after lease adjustments is likely to increase to above 3x. Furthermore, this material transaction may result in changes to the business model and associated financial policy of the combined entity.

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