Training on Forecasting September 17–18

ACRA affirms AA(RU) to the State Company “Russian Highways”, outlook Stable, and AA(RU) to bond issue

The credit rating of the State Company “Russian Highways” (hereinafter – the Company, or Avtodor) is based on the very strong state influence on Avtodor: the state exercises absolute operational and financial control over the Company and subsidizes the Company’s activities in asset management and road construction and reconstruction. The systemic importance of the Company is assessed as high, but the Agency notes that it is not ultimate as toll roads are not critical for the Russian transport infrastructure in view of the availability of toll-free alternatives.

Key rating assessment factors

High systemic importance. In 2017, the Avtodor's estimated share in the total Russian expenditures for road infrastructure was 30%, which is lower than the share (41%) of the Federal Road Agency (Rosavtodor) and equal to the aggregate share of regional and municipal budgets (30%). The Company acts as a public contracting authority in the strategic industry (design, construction and operation of highways). Avtodor is also the largest Russian toll highway operator (816 km or 56% of all toll highways in Russia). The Avtodor’s potential default may entail reputational risks for the state and the state budget risks, as a breach of concession agreements may trigger compensatory payments to concessionaires. ACRA points out that Avtodor’s expenditures under its development program has remained stable (a mere 1% decline for 2018–2020 against the previous version). This confirms the state's propensity to finance transport infrastructure program and, in case of need, to provide the Company with funds necessary to support its creditworthiness.

Very strong state influence. The Company was founded by virtue of Federal Law No. 45-FZ, and it enjoys a special legal status. The state is Avtodor’s sole owner, which exerts an absolute operational and financial control over the Company, while the latter’s Supervisory Board incorporates representatives of various government departments (including the Ministry of Transport, the Accounts Chamber, the Council of the Federation, and the Ministry of Finance). The Supervisory Board carries out operational management of the Company and approves its strategy and development program, which are approved by the Government and provide the basis of Avtodor’s activities. 

The Company’s activities are financed primarily from the federal budget and state funds. The amount of subsidies is determined for each project, with traditional preponderance of budget funds over private financing in relation to projects marked by high capital intensity, or social significance. The decision to raise market financing is made only after approval of federal budget expenditures. The Company’s ability to obtain extraordinary budget financing is limited due to the time-consuming program revision process and the need to alter the federal budget. The Company may carry some expenses forward, and any undrawn subsidies is carried forward too. The Company’s own incomes have grown gradually thanks to tolls collected: RUB 9.8 bln in 2017 against RUB 7 bln in 2016 (+38%). However, the Agency does not expect the degree of Avtodor’s dependence on budget financing to significantly decrease as, by ACRA estimates, the own income will make up no more than 21% of the total income by year-end 2020.

Comfortable funding structure and adequate liquidity. The Agency notes Avtodor’s adequate liquidity: as of January 1, 2018, the Company had RUB 13.2 bln in cash, of which RUB 3 bln was held on the Federal Treasury accounts (may be spent only upon approval of the supervisory board), RUB 968 mln were due to members of e-trade facility (security deposits of bidders), with the rest being deposited in state-owned banks. The Company’s funding structure is well-balanced. The total amount of investments estimated for 2018–2021 amounts to RUB 937 billion, of which 59% is planned to be financed by the federal budget and the National Welfare Fund, 24% is to be raised from investors and through market bond placement, and 15% will be obtained via tolling and Company’s own activities.

As of January 01, 2018, the volume of bond issues amounted to RUB 55.4 billion. According to the current borrowing plan, in 2018–2020, the Company plans to issue bonds for up to RUB 180.6 bln, of which bonds for about RUB 69 bln will be offered on the market. Despite the absence of explicit state guarantees pertaining to existing and future market-originated debt as well as the lack of formal state guarantees related to Avtodor’s obligations (Federal Law N 145-FZ), the Agency expects that under the program of Company’s activities, its principal debt and at least 25% of coupon payments will be serviced at the expense of the federal budget. At the same time, ACRA highlights that after 2020 the Company plans gradual transitioning to debt servicing from its own income sources, which will entail additional risks for the creditors.

Key assumptions

  • Retaining current amounts of subsidies allocated from the federal budget;
  • Debt servicing at the expense of the federal budget (principal debt and at least 25% of coupon payments).

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:

  • An increase in the Company’s systemic importance for the state and significant expansion of its functions.

A negative rating action may be prompted by:

  • A material decline in allocated budgetary subsidies, specifically those related to debt servicing;
  • A decrease of Avtodor’s systemic importance, in particular due to transferring its functions to other market players.

Rating components

Standalone creditworthiness assessment (SCA): none.

Support: State — on par with the Russian Federation minus 2 notches.

Adjustments: none

Issue ratings

Certified exchange-traded interest-bearing non-convertible unregistered bond issued by
the State Company Russian Highways (RU000A0ZYKM5)
, maturity date: December 13, 2019, issue volume: RUB 7 bln — AA(RU).

Credit rating rationale. Bond issue is a senior unsecured debt obligations of the State Company Russian Highways (hereinafter, the Company, or Avtodor). Due to the absence of either structural or contractual subordination of the bond, ACRA ranks the bond pari passu with other existing and future unsecured and unsubordinated obligations of the Company. The Agency expects that, in accordance with the Avtodor’s Program approved by the RF Government Decree of October 13, 2017, all principal debt and at least 25% of the coupon will be repaid from the federal budget. In accordance with the ACRA methodology, the issue credit rating is on par with the credit rating of Avtodor, i.e. AA(RU).

Regulatory disclosure

The credit ratings were assigned to the State Company “Russian Highways” and the bond (ISIN RU000A0ZYKM5) issued by the State Company “Russian Highways” under the national scale for the Russian Federation based on the Methodology for Credit Ratings Assignment to Banks and Bank Groups Under the National Scale for the Russian Federation 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 of the Russian Federation was also applied to assign the credit rating to the above bond issue.

The credit ratings of the State Company “Russian Highways” and the bond (ISIN RU000A0ZYKM5) issued by the State Company “Russian Highways” were first published by ACRA on June 02, 2017 and December 18, 2017, respectively. The credit rating of the State Company “Russian Highways” and its outlook as well as the credit rating of the above bond are expected to be revised within one year following the rating action date (May 30, 2018).

The credit ratings were assigned based on the data provided by the State Company “Russian Highways”, information from publicly available sources, as well as ACRA’s own databases. The rating analysis was performed using consolidated IFRS financial statements of the State Company “Russian Highways”. The credit ratings are solicited, and the State Company “Russian Highways” participated in their assignment.

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

ACRA provided no additional services to the State Company “Russian Highways”. No conflicts of interest were discovered in the course of credit rating process.

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