ACRA assigns A+(RU) to JSC «SG-trans», outlook Stable

The credit rating of JSC «SG-trans» (the Company), including its subsidiaries (the Group), reflects the Group's strong market positions in the liquefied hydrocarbon gas (LHG) transportation segment, strong business profile supported by the focus on high-margin cargoes, and high utilization rate and medium wear and tear of rolling stock. Wide geographic diversification and vast client base are also positive for the business profile. Rating restricting factors include business size, and medium leverage and coverage assessments.

The Group is the largest operator in the Russian LHG transportation market. Its freight traffic amounted to about 15 mln tons in 2020. Along with transportation operations, the Company is also a holding company that controls: 1) a 100% share in KhimInvestTrans JSC, a company owning a stock of gondola cars that organizes multimodal transportation of hazardous liquid bulk cargoes in tank containers; 2) a 100% share in Spetstransgarant LLC, the Russia's largest carrier of liquefied gases, liquid bulk chemicals, including hazardous ones, and food cargoes in tank containers; 3) a 100% share in Bashkir Transportation Company LLC, a lessee of rolling stock; 4) a 50% share in LLC NKhTK LLC (a joint venture with SIBUR Holding PJSC that offers railway transportation services; 5) a 41% share in Rail Garant Kazakhstan LLP, a Kazakh cargo carrier owning over 2,600 railway cars. 41.75% of the Company's shares are treasury shares, and the remaining 58.25% shares are held by individuals. The major shareholders of the Company are S. R. Smyslov and A. R. Taicher.

Key rating assessment factors

The Group's operating risk profile is strong. The 'aa' risk profile score reflects the Group's leading positions in the high-margin LHG transportation market. LHG transportation is one of the most sustainable and high-margin segments of rail freight transportation in terms of changes in the cargo base. Wide geographic diversification and vast client base ensure the high rolling stock utilization rate. The average age of tank containers owned by the Company is about 19 years, which is two times less than their useful life and corresponds to industry-average. The Company's rolling stock includes 22,500 units, and the total rolling stock controlled by the Group is over 32,000 units. Factor that strengthens the Group's operating profile is its leading positions in the transportation of chemicals in tank containers. The Group acquired KhimInvestTrans JSC in 2017 and Spetstransgarant LLC in 2019, and now it controls 24% of the total tank containers used to transport chemicals by the railroads of Russian Railways. In the past years, this innovative kind of containers has become popular in Russia. The Group operates the largest stock of tank containers in Russia. Transportation of liquid bulk cargoes using such tank containers is a relatively new and fast-growing market segment with multiple shippers.

The corporate governance assessment sub-factors have a neutral impact on the Group's operational risk profile, as they correspond to the average level in comparison with other Russian peers. The Group is pursuing a strategy aimed at strengthening its competitive advantages in high-margin freight transportation segments. Decisions on all strategic matters concerning the Group are made by the Company's board of directors consisting of five members. Committees for strategy, audit and finance, nominations and remuneration have been established by the board of directors. It should be noted that not all essential procedures in the Company are approved by the board of directors. In particular, there are no dividend and debt policies.

The Group's structure looks clear and logical. The Company, as the top-level entity, acts as the central treasury for its subsidiaries, attracting external loans and distributing them down the Group. In addition, the Company leases out its rolling stock to subsidiaries. The Company regularly prepares audited IFRS financial statements but does not publish them, as well as reports on its operations.

The Group's financial risk profile is a constraining factor for its final standalone creditworthiness assessment (SCA). The Group's business scale, measured using the absolute FFO before fixed charges and taxes and freight traffic (less than RUB 30 bln and less than 25 mln tons, respectively), is below the average figure in the Russia's corporate segment. Nevertheless, the Group's strong business profile ensures the very high assessment of business profitability. The return on FFO before fixed charges and taxes amounted to 55% in 2020. The Company's leverage, taking into account the capitalization of lease payments (adjusted total debt to FFO before net interest payments), was 3.4x in 2020 against 4.5x in 2019. The Agency expects the indicator to rise to 4.3x in 2021 due to a moderate growth in the bank debt. The Company's ratio of FFO before fixed charges to fixed charges grew to 3.6x in 2020 against 2.9x in 2019. By 2021-end, the ratio should be, according to ACRA's estimates, about 3.5x. Free Cash Flow (FCF) received the high score due to moderate capital expenses and dividend payments expected over the period from 2022 to 2024. The Company's liquidity is high due to positive cash flow and the availability of multiple credit lines with a significant amount of undrawn limits.

Key assumptions

  • A 6% annual average revenue growth in 2021–2024;
  • Moderate dividend payouts in 2022–2024;
  • A 7.4% weighted share of capex in revenue in 2021–2024.

Potential outlook or rating change factors

The Stable outlook assumes that the rating will most likely stay unchanged within the 12 to 18-month horizon.

A positive rating action may be prompted by:

  • Leverage (adjusted total debt /FFO before fixed charges) going below 2.0х and the ratio of FFO before fixed charges to fixed charges going above 5.0х.

A negative rating action may be prompted by:

  • Leverage (adjusted total debt /FFO before fixed charges) going above 4.0х and  the ratio of FFO before fixed charges to fixed charges going below 2.5х.

Rating components

SCA: а+.

Adjustments: none.

Issue ratings

No outstanding issues have been rated.

Regulatory disclosure

The credit rating has been assigned to JSC «SG-trans» under the national scale for the Russian Federation based on the Methodology for Credit Ratings Assignment to Non-Financial Corporations under the National Scale for the Russian Federation, and Key Concepts Used by the Analytical Credit Rating Agency within the Scope of Its Rating Activities.

A credit rating has been assigned to JSC «SG-trans» for the first time. The credit rating and its outlook are expected to be revised within one year following the publication date of this press release.

The credit rating was assigned based on the data provided by JSC «SG-trans», information from publicly available sources, as well as ACRA’s own databases. The credit rating was assigned based on the RAS financial statements of JSC «SG-trans». The credit rating is solicited, and JSC «SG-trans» participated in its assignment.

In assigning the credit ratings, ACRA used only information, the quality and reliability of which was, in ACRA's opinion, appropriate and sufficient to apply the methodologies.

ACRA provided no additional services to JSC «SG-trans». No conflicts of interest were discovered in the course of credit rating assignment.

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