ACRA assigns AA(RU) to Western High-Speed Diameter JSC, outlook Stable

The credit rating of Western High-Speed Diameter JSC (hereinafter WHD JSC, or the Company) is based on the Company’s high systemic importance for the economy of Saint Petersburg (ACRA rating: AAA(RU), outlook Stable) (hereinafter, the City) and the City’s very strong influence on the Company’s operations.

The rating was assigned without determining the Company’s stand-alone creditworthiness because the activities of WHD JSC are fully focused on the achievement of regional goals and objectives, while the Company’s ability to promptly service its debt obligations primarily depends on the support provided to the Company by the Government of St. Petersburg. Therefore, ACRA considers carrying out a stand-alone creditworthiness assessment to be inappropriate and only uses the Methodology for Analyzing Relationships Between Rated Entities and the State.

The rating is two notches lower than the rating of the City, which reflects the possibility of technical delays on the part of regional authorities when providing support should the Company encounter financial difficulties.

WHD JSC was founded in 1997 by the Committee for Property Management of Saint Petersburg, which currently holds a 100% stake in the Company.

WHD JSC is the owner of one of the largest intercity toll motorways in Russia, the Western High-Speed Diameter (hereinafter, the Motorway), which is built and operated as part of a project carried out under a trilateral public-private partnership (PPP) agreement concluded by the Government of Saint Petersburg, WHD JSC and Northern Capital Highway LLC until 2042.

Key rating assessment factors

Very strong state influence. The state exercises direct shareholding and operational control over the Company’s activities. In addition, the City has significant influence on the Company’s creditworthiness.

The Company’s main source of funding is the City budget. In particular, WHD JSC receives annual state support from Saint Petersburg in the amount required to fully cover coupon payments for existing bond issues. In addition, subsidies are provided for the construction of interchanges that increase the number of users of the Motorway, which in the future may lead to an increase in the Company’s revenues. State support is provided by increasing the size of WHD JSC’s charter capital.

The Motorway was constructed with considerable support from the state; federal investments accounted for more than 40%, while the entire nominal volume of debt obligations issued by the Company (RUB 25 bln) is guaranteed by the Ministry of Finance of the Russian Federation.

The state, represented by the City, is currently playing a key role in the formation of the pricing policy for the Motorway and directly influences the Company’s financial stability.

ACRA notes that the size of state support may be reduced the Company’s revenue increases.

ACRA also notes that as the City is a party to the PPP agreement, the Company’s failure to fulfil its obligations under the agreement will result in a significant financial risk to the City budget.

The Company plans to attract no more than RUB 6 bln in additional financing. The possibility of repaying this loan using funds from the budget of Saint Petersburg must be specified by the State Program “Development of Saint Petersburg’s Transport System” (hereinafter, the State Program). The fulfilment of WHD JSC’s obligations is also guaranteed by the shareholder agreement between the City and the creditor (hereinafter, the Shareholder Agreement). ACRA notes that the loan agreement includes a 2.5-year grace period on interest payments.

Limited systemic importance. ACRA notes that although the level of systemic importance of the Company is not the maximum according to ACRA’s methodology, all current issues of the Company’s bonds are completely covered by state guarantees from the Ministry of Finance of the Russian Federation. In ACRA’s opinion, this may serve as an additional incentive for the Company and the City to service the debt obligations on time. The two-notch adjustment compared to the City’s credit rating is due to the high (but not maximum) level of systemic importance of the Company stemming from the fact that the construction and operation of toll roads is not a critically important part of the development of the City’s transport infrastructure as there is a free alternative to toll roads. In addition, the City’s infrastructure only includes a small number of toll roads and the income they generate is limited and does not amount to a significant contribution to the City budget. Nevertheless, ACRA notes the importance of this project for the future development of the region’s infrastructure and for attracting private investments for road construction.

Key assumptions

  • Amendments to the State Program providing for the provision of a loan in 2020 and coverage of coupon payments for existing bond issues in full from 2021 to 2023;
  • Loan Agreement remaining in force until the expiration of the limit availability period (60 months);
  • Fulfilment of the Shareholder Agreement and loan agreement;
  • Fulfilment of all suspensive conditions of the loan agreement;
  • Maintaining the level of subsidiaries and guarantees provided from the federal budget/City budget.

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:

  • Increased systemic importance of the Company for the region and considerable expansion of its functionality.

A negative rating action may be prompted by:

  • Significant reduction of the size of budget subsidies, in particular, for servicing debt obligations;
  • Higher volume of borrowings, the principal debt of which is not covered by Saint Petersburg or other guarantees with comparable credit quality;
  • Lower systemic importance of the Company, in particular, the reallocation of its functions to other market participants;
  • Restructuring of the loan agreement, including with provision for the deterioration of the basic prerequisites used in the calculation of the Company’s rating;
  • Invalidation of the Shareholder Agreement;
  • The Company issuing bonds with relation to which there is no commitment to repay the principal debt in the State Program.

Rating components

SCA: none.

Support: Saint Petersburg — parity with the City minus 2 notches.

Issue ratings

No outstanding issues have been rated.

Regulatory disclosure

The credit rating has been assigned under the national scale for the Russian Federation based on 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.

A credit rating has been assigned to Western High-Speed Diameter JSC 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 Western High-Speed Diameter JSC, information from publicly available sources, as well as ACRA’s own databases. The credit rating is solicited, and Western High-Speed Diameter JSC participated in its assignment.

No material discrepancies between the provided data and the data officially disclosed by Western High-Speed Diameter JSC in its financial statements have been discovered.

ACRA provided no additional services to Western High-Speed Diameter JSC. No conflicts of interest were discovered in the course of credit rating assignment.

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