ACRA affirms AAA(RU) to JSCo “RZD”, outlook Stable, and AAA(RU) to bond issues

The credit rating assigned to Joint Stock Company “Russian Railways” (hereinafter, the Company) is on par with the financial obligations of the Russian Government, in view of the very high systemic importance of the Company for the Russian economy and very high state influence on the Company.

The Company is a natural monopoly, one of the largest global railway companies, which owns and operates railway infrastructure and locomotives in Russia. The Company’s consolidated IFRS revenue amounted to about RUB 2,487 bln in the 12 months ended June 30, 2019, which is 7% higher than a year earlier. The sole shareholder of the Company is the Russian Federation.

Key rating assessment factors

Very high systemic importance of the Company for the Russian economy and very high state influence. The systemic importance is very high because the Company is a natural monopoly, the largest employer and an inseparable part of the national economy. The state influence is very high, as the state exercises operating and shareholding control over the Company, directly regulates its activities by setting tariffs, and subsidizes the Company and finances its investment program through the National Welfare Fund (NWF) and tax benefits. In 2019, the volume of state funding, including subsidies and contributions to charter capital, will amount to RUB 143 bln, including RUB 40 bln allocated from the NWF to finance the Baikal-Amur Main Line development program.

Moderate debt load and better coverage. As of the end of 2018, the total debt to FFO before net interest ratio was 2.86x, and the ratio of the debt adjusted for operating lease to FFO before fixed charges was 2.95x. Despite the Company’s need for substantial funds for its capital investment program (about RUB 682 bln in 2019 and about RUB 1.48 tln in 2020–2022), ACRA expects the debt load to remain unchanged and the above ratios to be relatively stable. At the same time, ACRA notes a certain flexibility of the Company in implementing its capital development program, including depending on state funding for projects initiated by the state. The coverage (the FFO before interest-to-interest ratio) stood at 6.3x at the end of 2018 (compared to 5.9x at the end of 2017), pushed up by 8% growth in the FFO-to-net interest ratio in 2018 compared to 2017.

Negative FCF amid strong liquidity. ACRA assesses the Company’s liquidity as very strong: the amount due by the end of 2020 is about RUB 121 bln (taking into account options on ruble-denominated bonds), while the amount of available credit lines exceeds RUB 850 bln.

The Company still generates negative FCF because of its large-scale investment program. ACRA expects the FCF shortage to amount to 7–10% of revenues in 2019–2020. The average capex-to-revenue ratio is estimated at 23.7% for 2016–2018.

Key assumptions

  • Total amount of annual state support, including subsidies and contributions to the charter capital, at not less than RUB 52.7 bln;
  • Implementation of the capital investment program will not lead to a breach of the restrictions imposed by the financial strategy (net debt-to-EBITDA ratio of no higher than 2.5x on a consolidated basis);
  • Annual dividend payments at not more than RUB 4.5 bln.

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 negative rating action may be prompted by:

  • Significant decline in the systemic importance of the Company for the Russian economy;
  • Loss of shareholding control on the part of the state or a substantial decrease of volume of financial support.

Rating components

SCA: аа-

Support: on par with the RF.

Issue ratings

Rationale.  The issues listed below represent senior unsecured debt of the Company. Due to the absence of either structural or contractual subordination of the issues, ACRA ranks them as pari passu with other existing and future unsecured and unsubordinated debt obligations of the Company.

In accordance with ACRA’s methodology, and taking into account the high creditworthiness and moderate debt load of the issuer, as well as the absence of secured debt obligations, ACRA rates the bond issues AAA(RU), on par with the credit rating assigned to Joint Stock Company “Russian Railways”.

Key issue properties

  1. Certified interest-bearing non-convertible unregistered bond issued by JSCo “RZD”, series 19 (RU000A0JQ7Z2), maturity date: July 8, 2024, issue volume: RUB 10 bln, — АAА(RU).
  2. Certified interest-bearing non-convertible unregistered bond issued by JSCo “RZD”, series 23 (RU000A0JQRD9), maturity date: January 16, 2025, issue volume: RUB 15 bln, — АAА(RU).
  3. Certified interest-bearing non-convertible unregistered bond issued by JSCo “RZD”, series 32 (RU000A0JSGV0), maturity date: June 25, 2032, issue volume: RUB 10 bln, — АAА(RU).
  4. Certified interest-bearing non-convertible unregistered bond issued by JSCo “RZD”, series 28 (RU000A0JTU85), maturity date: March 21, 2028, issue volume: RUB 20 bln, — АAА(RU).
  5. Certified exchange-traded interest-bearing non-convertible unregistered bond issued by JSCo “RZD”, series BO-18 (RU000A0JTY57), maturity date: April 29, 2043, issue volume: RUB 25 bln, — АAА(RU).
  6. Certified exchange-traded interest-bearing non-convertible unregistered bond issued by JSCo “RZD”, series BO-09 (RU000A0JTZM7), maturity date: June 8, 2028, issue volume: RUB 25 bln, — АAА(RU).
  7. Certified exchange-traded interest-bearing non-convertible unregistered bond issued by JSCo “RZD”, series BO-12 (RU000A0JU542), maturity date: August 18, 2033, issue volume: RUB 25 bln, — АAА(RU).
  8. Certified exchange-traded interest-bearing non-convertible unregistered bond issued by JSCo “RZD”, series BO-13 (RU000A0JU7B7), maturity date: September 19, 2033, issue volume: RUB 25 bln, — АAА(RU).
  9. Certified exchange-traded interest-bearing non-convertible unregistered bond issued by JSCo “RZD”, series BO-15 (RU000A0JU9M0), maturity date: October 11, 2038, issue volume: RUB 25 bln, — АAА(RU).
  10. Certified interest-bearing non-convertible unregistered bond issued by JSCo “RZD”, series 30 (RU000A0JUAH8), maturity date: November 7, 2028, issue volume: RUB 15 bln, — АAА(RU).
  11. Certified exchange-traded interest-bearing non-convertible unregistered bond issued by JSCo “RZD”, series BO-10 (RU000A0JUCG6), maturity date:  November 29, 2028, issue volume: RUB 25 bln, — АAА(RU).
  12. Certified exchange-traded interest-bearing non-convertible unregistered bond issued by JSCo “RZD”, series BO-19 (RU000A0JUPZ8), maturity date: May 20, 2044, issue volume: RUB 25 bln, — АAА(RU).
  13. Certified exchange-traded interest-bearing non-convertible unregistered bond issued by JSCo “RZD”, series BO-16 (RU000A0JUX71), maturity date: September 20, 2039, issue volume: RUB 25 bln, — АAА(RU).
  14. Certified interest-bearing non-convertible unregistered bond issued by JSCo “RZD”, series 33 (RU000A0JVB19), maturity date: February 28, 2040, issue volume: RUB 15 bln, — АAА(RU).
  15. Certified interest-bearing non-convertible unregistered bond issued by JSCo “RZD”, series 34 (RU000A0JVB27), maturity date: February 28, 2040, issue volume: RUB 15 bln, — АAА(RU).
  16. Certified exchange-traded interest-bearing non-convertible unregistered bond issued by JSCo “RZD”, series BO-14 (RU000A0JVJS4), maturity date: May 29, 2035, issue volume: RUB 17 bln, — АAА(RU).
  17. Certified interest-bearing non-convertible unregistered bond issued by JSCo “RZD”, series 35 (RU000A0JVKH5), maturity date: May 30, 2040, issue volume: RUB 15 bln, — АAА(RU).
  18. Certified exchange-traded interest-bearing non-convertible unregistered bond issued by JSCo “RZD”, series BO-02 (RU000A0JVW71), maturity date: October 16, 2025, issue volume: RUB 15 bln, — АAА(RU).
  19. Certified interest-bearing non-convertible unregistered bond issued by JSCo “RZD”, series 36 (RU000A0JVY04), maturity date: October 15, 2040, issue volume: RUB 15.2 bln, — АAА(RU).
  20. Certified exchange-traded interest-bearing non-convertible unregistered bond issued by JSCo “RZD”, series BO-07 (RU000A0JWC82), maturity date: March 25, 2026, issue volume: RUB 20 bln, — АAА(RU).
  21. Certified exchange-traded interest-bearing non-convertible unregistered bond issued by JSCo “RZD”, series BO-05 (RU000A0JWD57), maturity date: April 3, 2026, issue volume: RUB 10 bln, — АAА(RU).
  22. Certified exchange-traded interest-bearing non-convertible unregistered bond issued by JSCo “RZD”, series BO-17 (RU000A0JWHU2), maturity date: April 26, 2041, issue volume: RUB 15 bln, — АAА(RU).
  23. Certified interest-bearing non-convertible unregistered bond issued by JSCo “RZD”, series 42 (RU000A0JWLU4), maturity date: May 22, 2046, issue volume: RUB 15 bln, — АAА(RU).
  24. Certified interest-bearing non-convertible unregistered bond issued by JSCo “RZD”, series 41 (RU000A0JX1S1), maturity date: November 27, 2031, issue volume: RUB 15 bln, — АAА(RU).
  25. Certified exchange-traded interest-bearing non-convertible unregistered bond issued by JSCo “RZD”, series BO-11 (RU000A0JXJK7), maturity date: February 4, 2032, issue volume: RUB 15 bln, — АAА(RU).
  26. Certified exchange-traded interest-bearing non-convertible unregistered bond issued by JSCo “RZD”, series 001Р-01R (RU000A0JXN05), maturity date: May 18, 2032, issue volume: RUB 15 bln, — АAА(RU).
  27. Certified exchange-traded interest-bearing non-convertible unregistered bond issued by JSCo “RZD”, series 001P-02R (RU000A0JXQ44), maturity date: April 2, 2037, issue volume: RUB 15 bln, — АAА(RU).
  28. Certified exchange-traded interest-bearing non-convertible unregistered bond issued by JSCo “RZD”, series 001P-03R (RU000A0JXR84), maturity date: April 23, 2037, issue volume: RUB 15 bln, — АAА(RU).
  29. Certified exchange-traded interest-bearing non-convertible unregistered bond issued by JSCo “RZD”, series 001P-04R (RU000A0JXZB2), maturity date: July 29, 2032, issue volume: RUB 15 bln, — АAА(RU).
  30. Exchange-traded interest-bearing non-convertible certified bearer bond issued by JSCo “RZD”, series 001P-09R, (RU000A0ZZRY2), maturity date: October 14, 2033, issue volume: RUB 10 bln, — АAА(RU).
  31. Certified interest-bearing non-convertible unregistered bond issued by JSCo “RZD”, series 001P-08R (RU000A0ZZGT5), maturity date: August 3, 2028, issue volume: RUB 10 bln, — АAА(RU).
  32. Certified interest-bearing non-convertible unregistered bond issued by JSCo “RZD”, series 001P-07R (RU000A0ZZ9R4), maturity date: May 26, 2033, issue volume: RUB 10 bln, — АAА(RU).
  33. Certified interest-bearing non-convertible unregistered bond issued by JSCo “RZD”, series 001P-06R (RU000A0ZZ4P9), maturity date: April 4, 2033, issue volume: RUB 15 bln, — АAА(RU).
  34. Certified interest-bearing non-convertible unregistered bond issued by JSCo “RZD”, series 001P-05R (RU000A0ZYU05), maturity date: February 1, 2033, issue volume: RUB 20 bln, — АAА(RU).
  35. Certified interest-bearing non-convertible unregistered bond issued by JSCo “RZD”, series 001P-17R (RU000A1010M4), maturity date: November 3, 2025, issue volume: RUB 15 bln, — АAА(RU).
  36. Certified interest-bearing non-convertible unregistered bond issued by JSCo “RZD”, series 001P-16R (RU000A100HY9), maturity date: June 25, 2026, issue volume: RUB 30 bln, — АAА(RU).
  37. Certified interest-bearing non-convertible unregistered bond issued by JSCo “RZD”, series 001P-15R (RU000A1009L8), maturity date: April 7, 2027, issue volume: RUB 15 bln, — АAА(RU).
  38. Certified interest-bearing non-convertible unregistered bond issued by JSCo “RZD”, series 001P-14R (RU000A1008D7), maturity date: May 4, 2029, issue volume: RUB 11 bln, — АAА(RU).
  39. Certified interest-bearing non-convertible unregistered bond issued by JSCo “RZD”, series 001P-13R (RU000A1007Z2), maturity date: March 19, 2029, issue volume: RUB 20 bln, — АAА(RU).
  40. Certified interest-bearing non-convertible unregistered bond issued by JSCo “RZD”, series 001P-12R (RU000A1002C2), maturity date: January 26, 2024, issue volume: RUB 15 bln, — АAА(RU).
  41. Certified interest-bearing non-convertible unregistered bond issued by JSCo “RZD”, series 001P-11R (RU000A0ZZXL7), maturity date: May 10, 2022, issue volume: RUB 10 bln, — АAА(RU).
  42. Certified interest-bearing non-convertible unregistered bond issued by JSCo “RZD”, series 001P-10R (RU000A0ZZX19), maturity date: June 3, 2022, issue volume: RUB 10 bln, — АAА(RU).

Regulatory disclosure

The credit ratings of Joint Stock Company “Russian Railways” and the bond issues listed above  were assigned 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, the Methodology for Analyzing Relationships Between Rated Entities and the State, and the Key Concepts Used by the Analytical Credit Rating Agency within the Scope of Its Rating Activities. The Methodology for Assigning Credit Ratings to Individual Issues of Financial Instruments under the National Scale for the Russian Federation was also applied to assign credit ratings to the issues listed above.

The credit rating assigned to Joint Stock Company “Russian Railways” and credit ratings assigned to the bonds (ISIN RU000A0JQ7Z2, ISIN RU000A0JQRD9, ISIN RU000A0JSGV0, ISIN RU000A0JTU85, ISIN RU000A0JTY57, ISIN RU000A0JTZM7, ISIN RU000A0JU542, ISIN RU000A0JU7B7, ISIN RU000A0JU9M0, ISIN RU000A0JUAH8, ISIN RU000A0JUCG6, ISIN RU000A0JUPZ8, ISIN RU000A0JUX71, ISIN RU000A0JVB19, ISIN RU000A0JVB27,  ISIN RU000A0JVJS4, ISIN RU000A0JVKH5, ISIN RU000A0JVW71, ISIN RU000A0JVY04, ISIN RU000A0JWC82, ISIN RU000A0JWD57, ISIN RU000A0JWHU2, ISIN RU000A0JWLU4, ISIN RU000A0JX1S1, ISIN RU000A0JXJK7, ISIN RU000A0JXN05, ISIN RU000A0JXQ44, ISIN RU000A0JXR84, ISIN RU000A0JXZB2) were first published by ACRA on November 16, 2017. The credit ratings assigned to the bonds (ISIN RU000A0ZZRY2, ISIN RU000A0ZZGT5, ISIN RU000A0ZZ9R4, ISIN RU000A0ZZ4P9, ISIN RU000A0ZYU05,  ISIN RU000A0ZZX19,   ISIN RU000A0ZZXL7,  ISIN RU000A1002C2,  ISIN RU000A1007Z2,  ISIN RU000A1008D7,  ISIN RU000A1009L8,  ISIN RU000A100HY9,  ISIN RU000A1010M4) were first published by ACRA on November 2, 2018, August 16, 2018, June 14, 2018, April 23, 2018, February 19, 2018, December 7, 2018,  December 12, 2018, February 1, 2019,  April 1, 2019,  April 4, 2019,  April 17, 2019, July 4, 2019 and November 11, 2019, respectively.

The credit rating of Joint Stock Company “Russian Railways” and its outlook and the credit ratings of the bonds issued by Joint Stock Company “Russian Railways” are expected to be revised within one year following the publication date of this press release.

The credit ratings are based on data provided by Joint Stock Company “Russian Railways,” information from publicly available sources, as well as ACRA’s own databases. The credit ratings  are based on the consolidated IFRS financial statements of Joint Stock Company “Russian Railways”. The credit ratings are solicited, and Joint Stock Company “Russian Railways” participated in their assignment.

No material discrepancies between the provided data and the data officially disclosed by Joint Stock Company “Russian Railways” in its financial statements have been discovered.

ACRA  provided no additional services to Joint Stock Company “Russian Railways”. No conflicts of interest were discovered in the course of credit ratings assignment.

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