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 not ultimate because toll roads are not critical for the Russian transport infrastructure in view of the availability of toll-free alternatives.
Key rating assessment factors
The high systemic importance. In 2018, the Avtodor's estimated share in the total Russian expenditures for road infrastructure was 40%. 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 (1,071 km or 82% 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 development program expenditures have remained stable, with a 2% increase planned for 2019–2021 against the previous version of the program. This confirms the state's propensity to finance the transport infrastructure program and, in case of need, to provide the Company with funds necessary to support its creditworthiness.
The very strong state influence. The Company was founded as special purpose legal entity in pursuance of Federal Law No. 45-FZ. Avtodor is 100% owned by the state that exercises an absolute operational and financial control over the Company, and the Supervisory Board of the Company includes representatives from 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 for Avtodor’s activities.
The Company’s activities are financed primarily from the federal budget and state-owned funds. The amount of subsidies is determined for each project, with traditional preponderance of budget funds over private financing in respect of capital intensive or socially important projects. No decision to raise market financing may be taken unless the relevant federal budget expenditures are approved. The Company’s access to extraordinary budget financing is limited and time consuming due to the need to alter the federal budget. The Company may carry some expenses forward, and any undrawn subsidy is carried forward, too. The Company’s own incomes have grown gradually along with the road tolls collected: RUB 12.5 bln in 2018 against RUB 9.4 bln in 2017 (+33%). However, the Agency does not expect the degree of Avtodor’s dependence on budget financing to significantly decrease as, according to ACRA estimates, the Company's own income will make up no more than 21% of the total revenue by year-end 2020.
The comfortable funding structure and adequate liquidity. The Agency notes Avtodor’s adequate liquidity: as of January 1, 2019, the Company had RUB 13.8 bln in cash, of which RUB 5.5 bln was held on the Federal Treasury accounts and might be spent only upon approval of the supervisory board, with the rest being deposited with state-owned banks. The Company’s funding structure is well-balanced. The total amount of investments estimated for 2019–2021 is RUB 412.45 bln. The Avtodor's expenditures are planned to be financed from the following sources: 59% — the federal budget, 13% — the National Welfare Fund, 7% — investors and market bonds, and 20% — toll roads and Company’s operations.
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 20% 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 the 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).
Certified exchange-traded interest-bearing non-convertible unregistered bond issued by the State Company Russian Highways (RU000A0ZZPY6), maturity date: October 19, 2019, issue volume: RUB 3 bln — AA(RU).
Certified exchange-traded interest-bearing non-convertible unregistered bond issued by the State Company Russian Highways (RU000A100B40), maturity date: April 23, 2021, issue volume: RUB 10 bln — AA(RU).
Credit rating rationale. The above bond issues are 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 bonds, ACRA ranks them 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 20% 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, RU000A0ZZPY6, RU000A100B40) 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 ratings to the above bond issues.
The credit ratings of the State Company “Russian Highways” and the bonds (ISIN RU000A0ZYKM5, RU000A0ZZPY6, RU000A100B40) issued by the State Company “Russian Highways” were first published by ACRA on June 02, 2017, December 18, 2017, October 19, 2018, and April 26, 2019, respectively. The credit rating of the State Company “Russian Highways” and its outlook as well as the credit rating of the above bonds are expected to be revised within one year following the publication date of this press release.
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 the rating process.
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.
