ACRA confirms compliance of projects financed using SINARA TRANSPORTATION’s green bond issue with internationally recognized principles and standards in the field of ecology and/or green financing (ICMA’s Green Bond Principles)

Compliance of the issue of with Regulation of the Bank of Russia dated December 19, 2019 No. 706-P

As part of the green bond issue of SINARA TRANSPORTATION (hereinafter, the Issuer) ACRA verified the compliance of projects that are planned to be financed with the proceeds from the bond issue with the International Capital Market Association’s (ICMA) internationally recognized principles and standards in the field of ecology and/or green financing (in accordance with Regulation of the Bank of Russia dated December 19, 2019 No. 706-P). The projects presented by the Issuer — electric freight trains and electric passenger trains — are part of the clean transportation category. Financing this area of projects through the issuance of green debt instruments is possible both in international and in Russian practice.

The specified projects and their number correspond with the general production plan approved by the Issuer for 2021–2025. As of the verification date, the final volume of the issue in monetary terms had not been determined (although it will not exceed RUB 10 bln), so the environmental effect was determined according to two projects.

Together, the Issuer and the organizations it controls are a group of companies (hereinafter, STM Group). As part of the assessed issue, STM Group is obligated to finance expenses for the production of:

  • At least 38 units of electric freight trains and 6 units of electric passenger trains (Project A), or
  • At least 60 units of electric freight trains (Project B).

The implementation of these projects makes it possible to achieve a positive effect from an environmental point of view. In total, in Project A, the 44 units of equipment (at least 38 units of electric freight trains and 6 units of electric passenger trains) make it possible to reduce greenhouse gas emissions by at least 61,600 tons of СО2 annually; in Project B, the 60 units of equipment (at least 60 units of electric freight trains) make it possible to reduce greenhouse gas emissions by at least by at least 96,000 tons of СО2 annually.

In the event of a change in the actual quantity of manufactured equipment, the relevant information will be presented in the annual reports of the Issuer. At the same time, ACRA notes that all proceeds raised through the issuance of green bonds will be used exclusively to finance these green projects, namely, next-generation equipment (electric locomotives and electric trains for freight and passenger transportation).

In addition, the actual environmental effects achieved during the operation of the manufactured equipment can be calculated by the Issuer following the replacement/expansion of the fleet of equipment powered by electric traction of the main buyer of its products. The main buyer of STM Group’s products specified in this Concept defines an environmental strategy until 2030, within the framework of which it is planned to expand the electric traction base. Accordingly, the actual environmental effect will be calculated based on the reduction in total СО2 emissions and energy consumption due to the replacement of outdated models/expansion of the rail transport fleet on traction power supply of the main buyer, including through the withdrawal of outdated models (including those working on fossil fuels and its derivatives) and replacing them with the indicated equipment.

Information about projects that are financed via green bond issues and their environmental impact (a list of projects can also be found in Appendix 1)

Project А

Total number of units of equipment planned to be produced

At least 44 (38 units of electric freight trains and 6 units of electric passenger trains)

Industry

Railroad transportation

Project category

Clean transportation

Project area

Reduction of energy consumption and CO2 emissions

Total energy savings

At least 831.6 TJ annually

(for all units)

Total annual reduction of greenhouse gas emissions

At least 61,600 tons of СО2 annually

(for all units)

Standard service life of vehicles, the production of which will be financed by funds from the placement of green bonds

40 years

 

Project B

Total number of units of equipment planned to be produced

At least 60 (60 units of electric freight trains)

Industry

Railroad transportation

Project category

Clean transportation

Project area

Reduction of energy consumption and CO2 emissions

Total energy savings

At least 1,295.5 TJ annually

(for all units)

Total annual reduction of greenhouse gas emissions

At least 96,000 tons of СО2 annually

(for all units)

Standard service life of vehicles, the production of which will be financed by funds from the placement of green bonds

40 years

 

Compliance of the issue with the draft Standards for Classifying Financial Instruments as Financial Instruments for Financing Sustainable (including Green) Development Projects and the draft Green Project Taxonomy of the Russian Federation

ACRA also verified the compliance of the issue and projects planned for financing using the proceeds raised from this issue for compliance with the draft Standards for Classifying Financial Instruments as Financial Instruments for Financing Sustainable (including Green) Development Projects and the draft Green Project Taxonomy of the Russian Federation.

Compliance of the green or adaptation financial instrument with the draft Standards

The assessed financial instrument complies with the draft Standards.

Confirmation of the type of financial instrument for sustainable development declared by the Initiator, as defined by Clause 6 of the Methodological Guidelines

Green financial instrument (bonds).

Information about the Initiator and the green project

The bond issuer is SINARA TRANSPORTATION, the corporate center of a divisional holding that unites the scientific, technical and production potential of Russian enterprises (related business units) for engineering, production, and maintenance of railroad equipment and diesel industrial plants. For the purposes of this issuance, green projects refer to the production of specific types of equipment (electric locomotives and electric trains) in one of the projects indicated on page 2 of this press release.

Objectives of financing the selected portfolio of green projects

The Issuer has chosen the production of environmentally friendly transportation as the financing objectives, namely rail transportation with traction power supply (Clause 5.1 of the Green Project Taxonomy) in accordance with the approved production plan for 2021–2025 according to one of the presented projects (see page 2 of this press release).

Assessment of procedures for providing recommendations on the use and management of funds

Complies (see pages 6–7 of this press release).

Assessment of procedures for selection and approval of green projects

Complies (see pages 6–7 of this press release).

Assessment of control over the implementation of green projects

Complies (see pages 6–7 of this press release).

Confirmation of the expected environmental effect from the implementation of the green or adaptation project

The issuer presented detailed calculations of the environmental effects from the implementation of projects — the operation of the specified models of equipment in the amount specified in the “Concept for the Issue of Green Bonds” (hereinafter, the Concept). Environmental effects are understood as a reduction in energy consumption and a decrease in greenhouse gas emissions during the operation of equipment, the production of which is planned to be financed through the issue of green bonds.

Calculations of the reduction in energy consumption and reduction of greenhouse gas emissions during the operation of this equipment were presented to the Agency in full. The calculations of these parameters were carried out based on the data of the report of the Intergovernmental Panel on Climate Change (IPCC) on specific values of СО2 emissions per passenger-kilometer/ton-kilometer for passenger and freight transportation, as well as on the basis of similar data for road, sea and air transportation (for comparison), data on the planned volumes of equipment production (in accordance with the current production plan), and taking into account the assumptions on the annual mileage and types of fuel used. The Agency considers the presented calculations of environmental effects (reduction of CO2 emissions and reduction of energy consumption) to be reasonable and credible.

In addition, the actual environmental effects achieved during the operation of the manufactured equipment can be calculated by the Issuer following the replacement/expansion of the fleet of equipment powered by electric traction of the main buyer of its products. The main buyer of STM Group’s products specified in this Concept defines an environmental strategy until 2030, within the framework of which it is planned to expand the electric traction base. Accordingly, the actual environmental effect will be calculated based on the reduction in total СО2 emissions and energy consumption due to the replacement of outdated models/expansion of the rail transport fleet on traction power supply of the main buyer, including through the withdrawal of outdated models (including those working on fossil fuels and its derivatives) and replacing them with the indicated equipment.

Size of the planned indicators of the environmental effect from the implementation of green projects

Provided in Appendix 1.

Compliance of bonds with the requirements established by the Bank of Russia in accordance with Russian legislation on the issue of securities for bonds, the issue or program of which contains additional identification using the words “green bonds”

Yes (extended confirmation is provided on page 1 of this press release).

Compliance of the issue with the ICMA’s Green Bond Principles

ACRA confirms that the planned bond issue of the Issuer complies with all the basic Green Bond Principles (GBP) of the ICMA. The area in which proceeds will be used (projects that are financed through the issue of bonds to achieve ICMA-compliant objectives and have a positive environmental impact), process of evaluating and selecting projects, management of proceeds and reporting presented in the Concept are fully in line with GBP criteria, and consequently the planned bond issue can be considered as green.

Key issue properties

Borrower

SINARA TRANSPORTATION

Issuer’s credit rating

A(RU), outlook Stable

Actual issuer

SINARA TRANSPORTATION

Type, series and other identification signs of securities

Green uncertificated non-convertible exchange-traded interest-bearing bond subject to centralized title registration,
Series BО-001P-02, each with a nominal value of 1,000 (one thousand) Russian rubles, placed as a public offering under the 001P Series Exchange-Traded Bond Program (registration number 4-55323-E-001P-02E) dated April 27, 2021

Planned issue volume

Up to RUB 10 bln inclusively

RegS

To be determined

Placement start date

To be determined

Maturity date

To be determined

 

SINARA TRANSPORTATION is a divisional machine-building holding of Sinara Group, established in 2007, which specializes in railroad machine-building (production of electric locomotives, diesel locomotives, track equipment and diesel engines). STM Group’s operations also include service and engineering in the field of railroad machine-building. STM Group is actively investing in the development of technology for the production of more environmentally friendly and energy efficient equipment.

Key assessment factors

The Issuer provided ACRA with documents containing project eligibility criteria that can be included in the green bond issue, project selection process, approaches to managing proceeds, and reporting. ACRA made conclusions on the compliance of the bond issue with the four GBP based on these documents.

GBP assessment

 

Source: ACRA

Use of proceeds

The objectives of the issuance of green bonds are clearly formulated and comply with GBP. The proceeds from the issuance of these bonds will be used exclusively to finance the production of railroad equipment that has higher energy efficiency than the models that are common on the market and falls under the ICMA project category Clean Transportation. The Issuer provided a list of projects to be financed (models of electric locomotives and electric trains, with an indication of the planned production volumes for each model), as well as calculations of the reduction in energy consumption and greenhouse gas emissions achieved when operating the equipment. All of the projects comply with internationally recognized principles and standards in the field of ecology and/or green financing. In addition, ACRA notes that the financing of these projects is admissible within the framework of GBP and fully complies with them.

Calculations of the reduction in energy consumption and greenhouse gas emissions during the operation of this equipment were presented to the Agency in full. The calculations of these parameters were carried out based on the data of the IPCC report1 on specific values of СО2 emissions per passenger-kilometer/ton-kilometer for passenger and freight transport, as well as on the basis of similar data for road, sea and air transportation (for comparison), data on the planned volumes of equipment production (in accordance with the current production plan) and taking into account the assumptions on the annual mileage and types of fuel used. The Agency considers the presented calculations of environmental effects (reduction of CO2 emissions and reduction of energy consumption) to be reasonable and credible.

A complete list of green projects financed from this issue of green bonds, with estimates of the environmental impact and an indication of their compliance with internationally recognized principles and standards in the field of ecology and/or green finance is given in Appendix 1.


1 Chapter 8 Transport, IPCC Report, https://www.ipcc.ch/site/assets/uploads/2018/02/ipcc_wg3_ar5_chapter8.pdf

Process of evaluating and selecting projects

The Issuer’s project selection principles are clearly defined and described in detail in the Concept. As per the Concept, projects financed by the Issuer via green bond issues can fall into the clean transportation category. These projects, according to ACRA, correspond to the following UN Sustainable Development Goals:

  • Goal 9: Build resilient infrastructure, promote inclusive and sustainable industrialization and foster innovation;
  • Goal 11: Make cities and human settlements inclusive, safe, resilient and sustainable;
  • Goal 13: Take urgent action to combat climate change and its impacts.

Under the Concept, the Issuer outlined a clear and understandable procedure for determining the projects’ compliance with an environmental focus.

The main criteria for selecting projects for green financing are as follows:

  • Significance of the environmental impact (when compared with alternative types of passenger transportation: sea, road and air transportation).
  • Presence of scientifically based and transparent approaches to calculating environmental effects (for example, reducing GHG emissions in the atmosphere).

The Issuer has selected specific projects for this issue (see Appendix 1).

The procedure of selecting projects is conducted by special purpose vehicles, which are responsible for the allocation of funds received from the placement of green bonds: the supervisory board for financing the Issuer’s sustainable development projects (hereinafter, the Supervisory Board) and the working group responsible for the selection of green projects (hereinafter, the Working Group). According to the Issuer, the Working Group includes representatives of both the Issuer’s financial departments and those responsible for environmental issues of STM Group.

In ACRA’s opinion, this indicates an efficient process of evaluating and selecting projects and corresponds with the best market practices.

This procedure, according to ACRA, fully complies with GBP.

Management of proceeds

The Issuer is the parent company of STM Group and manages the enterprises of STM Group. Within the perimeter of STM Group there are manufacturing and other enterprises that manufacture equipment and machinery, as well as the necessary supplies of components and materials. The funds raised from the placement of green bonds will be distributed by the Issuer through intra-group financing mechanisms between the enterprises of STM Group and be used exclusively for purposes related to the implementation of projects specified in the Concept.

Under the Concept, STM Group will allocate the equivalent of the funds received from the placement of green bonds to fully finance the stated projects and prepare appropriate reports on the use of funds. Additionally, the Issuer set up the Supervisory Board to monitor the targeted use of the raised funds. If it is impossible to spend 100% of the equivalent of these funds within the year after they are raised, STM Group is obliged to place the equivalent of funds that have not been spent on green projects in bank deposits until the moment of spending. In addition, the bondholders have the right to demand early repayment of the bonds they own in case of violation of the terms of the targeted use of funds.

According to Regulation of the Bank of Russia dated December 19, 2019 No. 706-P , funds raised via the targeted issue of green bonds are directed by STM Group to finance projects that comply with internationally recognized principles and standards in the field of ecology and/or green financing (see Appendix 1).

According to ACRA, the procedure for the management of proceeds fully complies with GBP.

Reporting

According to the Concept, the Issuer plans to publish annual reports on the placed bonds at https://e-disclosure.ru/portal/company.aspx?id=13378, as well as on the website of the Moscow Exchange. These reports will contain information on the amount of disbursed and undisbursed funds, the project’s progress and the achieved result of its implementation (including the specified key indicators of achieving this result), as well as on the corresponding positive environmental effect.

However, considering that at the time of verification the Issuer had not submitted a draft report on the use of funds, as well as the fact that the Issuer has not previously published such reports, ACRA applied conservative estimates for a number of criteria within the “Reporting and Transparency” factor.

According to ACRA, this procedure fully complies with GBP.

Additional assessment factors

Organizational structure and strategy

The Issuer hired an external consultant (ESG Advisory, the consulting division of GPB Bank (JSC) in order to prepare the Concept and structure the issue transaction. However, the Agency assesses the Issuer and consultant’s experience as limited, due to, among other things, the early stage of development of the green finance market in Russia. Additionally, in order to prepare for the implementation of the transaction for issuing green bonds, the Issuer set up the Supervisory Board and the Working Group. The Working Group, according to the Issuer, includes representatives of the directorates for project financing, liaising with investors and banks, economics, as well as representatives of other relevant departments, including those responsible for environmental issues at STM Group.

The funds received from the placement of green bonds will be used to finance projects that fall into the clean transportation category. In particular, specific models and the number of transportation units, which production will be financed via the issuance of these bonds, have been outlined.

As part of the Concept, the Issuer formulated a set of quantitative indicators, which are planned to be achieved during the implementation of the funded projects: 1) reduction of direct CO2 emissions (annually); 2) reduction of energy consumption (annually).

Within the framework of its production plans, STM Group strives to increase the production of more environmentally friendly types of equipment, which is confirmed by the planned increase in revenue from the sale and maintenance of green equipment by more than 1.5 times in the period from 2020 to 2023. Under the Concept, the Issuer expressed its commitment to the UN Sustainable Development Principles and defined a set of the Sustainable Development Goals, the achievement of which, according to the Issuer, is contributed to by the Issuer’s main activities. However, the Issuer does not have a sustainable development strategy. Furthermore, the commitment to the Sustainable Development Goals is not confirmed by any documents other than the Concept, and is not disclosed on the Issuer’s website.

Financial feasibility of projects

In the case of this issue, projects mean the production of specific types of equipment (two options), which are listed in the production plan approved by STM Group for 2021–2025 and described in Appendix 1. Considering that STM Group’s production plan was developed and approved taking into account the volume of orders from its key customers, the Agency assesses the financial feasibility of the projects as high.

Key assumptions

  • Targeted use of funds received from the placement of bonds;
  • In order to calculate the environmental effects of the implementation of projects (operation of these transportation units in the amount specified in the Concept), the following assumptions were made:
  1. To compare specific CO2 emissions (gram of CO2 per passenger-kilometer/ton-kilometer) from electric locomotives and electric trains, the following types of transportation were used: road transportation (LDV commercial; HDV large); rail transportation (Diesel; Electric); sea transportation (Barge; Container ship (coastal); Container ship (ocean)); air transportation.

  2. When calculating the key effects, the following assumption was used - the annual mileage of one electric freight train — 100,000 km, the value of the transported cargo — 8,000 tons (for electric locomotives).

  3. When calculating the key effects, the following assumption was used - the project assuming that the annual mileage of one electric passenger train/electric train will be 100,000 km, the number of passengers — 1,276. When calculating the key effects,  the following assumption was used - the scenario assuming that the annual mileage of one tram will be 100,000 km, the number of passengers — 325 for a double-articulated dual model, 270 for a double-articulated low-floor model, and 174 for a single-section model.

  4. When calculating the potential for reducing energy consumption, the following assumption was used - the following types of fuel were burned for the corresponding types of transportation: diesel locomotives, water transportation — diesel fuel; motor transportation — gasoline; air transportation — aviation fuel.

  5. Implementation of the production plan for 2021–2025 in line with the parameters specified in Appendix 1.

  6. When calculating the potential for reducing direct CO2 emissions, only direct emissions from the operation of rolling stock were taken into account, i.e. not emissions from production of transportation units in question, emissions from the combustion of fuel required for production of electricity, which in turn is needed to power the rolling stock, as well as for the repair and subsequent disposal of this transportation.

  7. When calculating the reduction of direct CO2 emissions and energy consumption, we did not take into account the parameters of the transportation units that are supposed to be replaced with the produced ones in the fleet of the end consumer of products.

Assessment components

Compliance of the issue with GBP: yes.

Assessment score: GR2.

Regulatory disclosure

The assessment of the projects financed as part of the green bond issue of SINARA TRANSPORTATION for compliance with internationally recognized principles and standards in the field of ecology and/or green financing, as well as of the bonds themselves — for compliance with GBP, have been performed based on the Methodology for Green Debt Obligation Assessment with regard to green bond assessment.

ACRA has published its opinion on the compliance of the projects financed by the Issuer with internationally recognized principles and standards in the field of ecology and/or green financing, and also on the compliance of the bonds of SINARA TRANSPORTATION with GBP for the first time. The compliance assessment may be revised within one year following the publication date of this press release.

ACRA’s opinion on the compliance of the projects financed by the issuer with internationally recognized principles and standards in the field of ecology and/or green financing, and also on the compliance of the bonds of SINARA TRANSPORTATION with GBP is based on data provided by SINARA TRANSPORTATION, information from publicly available sources, and ACRA’s own databases. The assessment of compliance of the projects financed by the issuer with internationally recognized principles and standards in the field of ecology and/or green financing, and also on the compliance of the bonds of SINARA TRANSPORTATION with GBP was solicited, and SINARA TRANSPORTATION participated in the assessment process.

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

No conflicts of interest were discovered in the course of the assessment process.

Appendix 1. List of projects financed as part of the green bond issue of SINARA TRANSPORTATION

No.

Number of units of equipment produced during the implementation of each project

Industry/Project Category

Total energy savings

Reduction of direct GHG emissions

Project А

 

At least 44 units of equipment (38 units of electric freight trains and 6 units of electric passenger trains)

Railroad transportation/Clean transportation

At least 831.6 TJ annually

(for all projects)

At least 61,600 tons of СО2 annually

(for all projects)

Project B

 

 

At least 60 units of equipment (60 units of electric freight trains)

Railroad transportation/Clean transportation

At least 1,295.5 TJ annually

(for all projects)

At least 96,000 tons of СО2 annually

(for all projects)

ACRA confirms that the purpose of each of the above projects is to tackle environmental issues, the implementation of these projects fully complies with the ICMA’s internationally recognized principles and standards in the field of ecology and/or green financing (Green Bond Principles).

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