The credit rating assigned to KAMAZ PTC (hereinafter, KAMAZ, or the Company) is based on high systemic importance of the Company for the Russian economy and high level of state influence according to the ACRA methodology. In addition, the Company enjoys a strong position in the market, has high-quality corporate governance, strong geographic diversification, strong liquidity assessments, and medium assessments of business profile, size, profitability, cash flow, leverage and coverage. The change in outlook to “Negative” is driven by high uncertainty as to the outlook for the heavy-duty truck market due to crisis developments in the economy.
KAMAZ is a leader in the Russian heavy-duty truck market. The share of KAMAZ in the truck segment of 14-40 tons load capacity was 44% in 2019, including 64% market share in the chassis and custom vehicles market, 44% in dump trucks, 78% in high-sided trucks, and 27% in tractor units (including 23% in the long-haul tractors).
Key rating assessment factors
Systemic importance of KAMAZ and state’s influence on the Company are assessed as high. The Company is a key player in the Russian truck market that is of strategic importance for the state in terms of ensuring transportation security. In addition, the car industry demonstrates one of the highest multiplier effects: one job in this sector creates ten or more jobs in related industries. KAMAZ is a backbone enterprise in its location. The Company is a consistent recipient of very strong direct support from the government in form of concessionary loans, property tax benefits, co-financing of research and development, state guarantees for loans and bond issues, subordination of interest rate on investment loans, subsidies for partial reimbursement of export transportation costs, concessional financing of export contracts, etc.
Medium assessments of leverage and coverage. In 2018-2019, the total debt of the Company has grown significantly on the higher volume of lease portfolio, consolidation of liabilities of Group OAT (which was acquired by the Company in February 2018) on the balance sheet of the Company, and the planned peak of capital expenditures. The Company has placed bonds secured by a government guarantee in 2015-2018 as the statutory expiry date for placing such bonds was in 2018, which resulted in an excessive liquidity cushion. The effective interest rate in the bond portfolio covered by the government guarantee (for the total of RUB 35 bln, or 35% of the Company’s debt portfolio) is currently 3.5% taking into account interest rate subsidies. This justifies keeping excess liquidity as a minimum permanent balance in settlement accounts, which offers a substantially higher interest rate. As the Company saw its lease portfolio increase rapidly (the number of vehicles sold on lease grew from 1,800 in 2017 to 4,500 in 2019), the portfolio of bonds issued to finance lease payments (RUB 28.4 bln, or 28.4% of total debt) has increased significantly by the end of 2019. As the share of debt raised to finance lease payments is substantial, ACRA includes revenues from leasing in FFO when calculating leverage and coverage indicators of the Company.
Sales of KAMAZ vehicles with the payload capacity over 8 tons decreased to 35,500 units in 2019 from 38,400 units in 2018, which was largely due to the decision postponement regarding subsidies for natural gas vehicles and led to lower FFO of the Company. Also, KAMAZ received less subsidies for natural gas vehicles than due, which affected its profitability. At the same time, subsidies short-received in 2019 are expected to be paid this year, and therefore, ACRA includes these subsidies in 2019 FFO.
The crisis caused by the spread of the coronavirus will have an effect on the Company’s sales in 2020. Sales of vehicles with payload capacity over 14 tons will be down to 40,000 units from 63,000 units in 2019; KAMAZ’ market share in this segment, however, will increase from 44% to 56%. This will be caused by higher prices for imported vehicles resulting from foreign currency revaluations as well as by a prolonged period of production halt in Europe (while production at KAMAZ was halted for one week only as part of the quarantine measures and then resumed at full capacity). Full recovery of the market (to 65,000 vehicles) is expected in 2022.
The weighted-average ratio of the Company’s total debt to FFO before net interest payments will be 8.6x in 2017-2022, according to ACRA's estimates. Very high value of this indicator is offset in leverage assessment by very high quality of the debt (the debt has very high duration, as over 27% of the debt is to be repaid after 2029) and availability of government guarantees covering a substantial portion of the debt portfolio. ACRA also takes into account the average total debt to capital ratio of the Company (the weighted average indicator is expected to equal 1.8x in 2017-2022). Interest payments on a substantial portion of the Company’s liabilities are subsidized by the Russian government (from 70% to 90% of the key rate), and a number of loans have concessionary interest rates. In view of the above, the weighted-average FFO before net interest payments to interest payments ratio (excluding subsidies) is expected to reach 1.8x in 2017-2022. Considering the economically justified excess liquidity cushion, ACRA uses in its coverage assessment the weighted-average FFO before net interest payments to net interest payments ratio (excluding subsidies), which ACRA estimates to reach 2.4x in 2017-2022.
Strong liquidity is maintained by substantial cash on Company’s accounts and significant amount of non-utilized funds from open credit facilities. These sources cover the debt repayment amount until 2029 by over 100%. The qualitative assessment of liquidity is also high owing to comfortable repayment schedule of debt obligations in the medium term and diversified funding sources.
Medium cash flow of the Company stems from substantial capital expenditures as KAMAZ is currently at the investment cycle peak. In its cash flow assessment, ACRA takes into account the planned government support to fund Company’s investments in 2020-2022 and reduce its debt load. According to ACRA's estimates for the period from 2017 to 2022, the Company’s average weighted FCF margin will be 0% and the weighted-average capital expenditures to revenues ratio at 5.7%.
Key assumptions
- Retaining high level of continuous government support;
- Domestic sales of KAMAZ vehicles with payload capacity over 8 tons decline from 35,500 units in 2019 to 26,400 units in 2020 and then rebound to 36,500 units in 2022;
- Successful implementation of the Company’s export strategy driving growth of export sales of trucks and assembly sets to 7,500 units by 2022 (+50% against 2019).
Potential outlook or rating change factors
The Negative outlook assumes that the rating may be downgraded within the 12 to 18-month horizon.
A positive rating action may be prompted by:
- 20% annual increase in the Company’s sales against the projections for 2020, 2021 and 2022.
- The weighted-average total debt / FFO before net interest payments ratio descending below 5.0x
- The weighted-average FFO before net interest payments to interest payments ratio exceeds 5.0x.
A negative rating action may be prompted by:
- A substantial reduction of continuous government support;
- 10% annual decline in the Company’s sales against the projections for 2020, 2021 and 2022.
Rating components
Standalone creditworthiness assessment (SCA): bbb+.
Support: state support, SCA +3.
Issue ratings
Exchange-traded interest-bearing certified bearer bonds issued by KAMAZ PTC, BO-07 series, maturity date: May 05, 2033, issue volume: RUB 3 bln — АА-(RU).
Exchange-traded interest-bearing certified bearer bonds issued by KAMAZ PTC, BO-08 series, maturity date: May 05, 2033, issue volume: RUB 3 bln — АА-(RU).
Exchange-traded interest-bearing certified bearer bonds issued by KAMAZ PTC, BO-09 series, maturity date: May 10, 2033, issue volume: RUB 3 bln — АА-(RU).
Exchange-traded interest-bearing certified bearer bonds issued by KAMAZ PTC, BO-10 series, maturity date: May 10, 2033, issue volume: RUB 3 bln — АА-(RU).
Exchange-traded interest-bearing certified bearer bonds issued by KAMAZ PTC, BO-11 series, maturity date: May 10, 2033, issue volume: RUB 3 bln — АА-(RU).
Exchange-traded interest-bearing certified bearer bonds issued by KAMAZ PTC, BO-P01 series, maturity date: February 04, 2022, issue volume: RUB 7 bln — А+(RU).
Exchange-traded interest-bearing certified bearer bonds issued by KAMAZ PTC, BO-P02 series, maturity date: March 25, 2022, issue volume: RUB 6 bln — А+(RU).
Exchange-traded interest-bearing certified bearer bonds issued by KAMAZ PTC, BO-P03 series, maturity date: June 10, 2022, issue volume: RUB 7 bln — A+(RU).
Exchange-traded interest-bearing certified bearer bonds issued by KAMAZ PTC, BO-P04 series, maturity date: July 6, 2022, issue volume: RUB 3 bln — A+(RU).
Exchange-traded interest-bearing certified bearer bonds issued by KAMAZ PTC, BO-P05 series, maturity date: October 19, 2022, issue volume: RUB 5 bln — A+(RU).
Key properties of the BO-P06 series bond issue
| Borrower | KAMAZ PTC |
| Issuer credit rating | А+(RU), outlook Negative |
| Actual issuer | KAMAZ PTC |
| Type of security | Exchange-traded interest-bearing certified bearer bonds, BО-P06 series |
| ISIN / RegS | 4B02-06-55010-D-001P / RU000A101FR5 |
| Issue volume | RUB 1.999 bln |
| Placement start date | February 20, 2020 |
| Maturity date | August 19, 2021 |
Credit rating rationale. The issues are senior unsecured debt instrument of KAMAZ PTC. In view of the absence of either structural or contractual subordination of the issue, ACRA assesses the bond pari passu with other existing and future unsecured and unsubordinated obligations of the Company. According to the ACRA methodology, the credit rating of the BO-P01, BO-P02, BO-P03, BO-P04, BO-P05, BO-P06 series bond issues is on par with that of the Company — A+(RU).
The principal amounts under BO-07, BO-08 BO-09 BO-10 and BO-11 series bonds are secured by state guarantees, therefore ACRA classifies such bonds as indemnity category I, which results in a one-notch upward adjustment of the issue credit ratings against the credit rating assigned to KAMAZ PTC, — to AА-(RU).
Regulatory disclosure
The credit rating of KAMAZ PTC and the credit ratings of the above bonds issued by KAMAZ PTC were assigned under the national scale for the Russian Federation and is 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 of the Russian Federation was also applied to assign credit ratings to the above bond issues.
For the first time, the credit rating assigned to KAMAZ PTC was published by ACRA on April 23, 2018; the credit ratings assigned to BO-07, BO-08 BO-09 BO-10 and BO-11 series bonds issued by KAMAZ PTC were published by ACRA for the first time on May 14, 2018. The credit ratings assigned to BO-P01, BO-P02, BO-P03, BO-P04, BO-P05 series bonds issued by KAMAZ PTC were published by ACRA for the first time on February 08, 2019, March 29, 2019, June 13, 2019, July 10, 2019, and October 23, 2019, respectively. The credit rating has been assigned to BO-P06 bond issued by KAMAZ PTC for the first time. The credit rating of KAMAZ PTC and its outlook and the credit ratings of the above bonds issued by KAMAZ PTC are expected to be revised within one year following the publication date of this press release.
The credit ratings are based on the data provided by KAMAZ PTC, information from publicly available sources, and ACRA’s own databases. The credit ratings are solicited, and KAMAZ PTC participated in their assignment.
No material discrepancies between the data provided and the data officially disclosed by KAMAZ PTC in its financial statements have been discovered.
The coverage indicator was assessed in deviation from the methodology: taking into account the economically justified excess liquidity cushion, ACRA used the FFO before net interest payments to net interest payments ratio in its assessment of the coverage level.
ACRA provided no additional services to KAMAZ PTC. No conflicts of interest were discovered in the course of credit rating assignment.
