The credit rating of Rostec State Corporation (hereinafter, the Corporation) is assessed as on par with the Russian Federation based on the Corporation’s very high systemic importance for the state and very high degree of state influence on the Corporation’s activities.
The Corporation consolidates over 800 companies from civil and defense industries, including high-tech manufacturers in industries like aviation, conventional weapons, ammunition and special chemistry, and radio electronics.
A significant amount of the Corporation’s companies are key performers of the state defense order, which determines the Corporation’s significance in ensuring the country’s defense capability.
The Corporation’s assets are formed primarily for the purposes of the Russian government. Therefore, ACRA believes that the determination of a standalone creditworthiness assessment (SCA) is impractical, and has used only the Methodology for Analyzing Relationships between Rated Entities and the State.
Key rating assessment factors
Very high systemic importance. The Corporation was established by and operates in accordance with Federal Law No. 270-FZ “On State Corporation for Assistance to Development, Production and Export of Advanced Technology Industrial Products ‘Rostec’”. The Corporation’s companies are contractors under the state defense order (they contribute significantly to the total volume of the state defense order), military and technical projects, and special federal programs. Both the Corporation’s companies and third-party contractors participate in manufacturing processes. In 2018, the President of Russia signed an executive order (No. 596, dated October 24, 2018) on the transfer of shares of United Aircraft Corporation (UAC), a manufacturer of civil and military aircraft, to the Corporation. In late 2018, work began on the integration of UAC into the Rostec Group. Currently, the integration process is almost complete and work is underway to improve the financial condition of UAC companies with the highest leverage. All of the above points to the Corporation’s key role in strategically important markets for the state.
The Corporation manufactures products under international contracts. Defaulting on these contacts could lead to financial losses for the state and political risks. This is another important factor contributing to substantial budget risks.
As of the end of 2019, the average number of employees working at the Corporation’s companies stood at around 509,000 people. The Corporation’s social responsibility program covers graduate development plans, mortgage arrangements, etc. This is evidence of the Corporation’s high social importance for the state in maintaining social and financial stability in specific regions in terms of the amount of taxes paid to budgets of all levels and providing jobs throughout the country.
The Corporation acts as a development institution in defense and civil manufacturing sectors. Decision-making regarding any company joining the Corporation is primarily driven by state interest (as far as asset consolidation in the above segment and asset management are concerned). The Corporation provides, among other means of support, financial aid to its subsidiaries. ACRA also notes the importance of the Corporation for the state as an important source of innovative solutions and measures taken in socially significant areas (for example, establishing medical evacuation throughout the country, a network of eco-friendly incineration plants in Russia’s largest cities, etc.).
Very high level of state influence on the Corporation’s activates. The Corporation’s strategy is approved by a supervisory board consisting of nine members that represent the interests of the state. All representatives of the Corporation’s Supervisory Board, including the CEO, are appointed by a separate decree of the President of the Russian Federation.
The Corporation regularly receives state subsidies and special-purpose funds under special federal programs to implement national defense projects, upgrade and re-equip production facilities, and develop the national manufacturing sector. In addition, the state supports the Corporation through direct subsidizing of costs, subsidizing loan interest, and state guarantees. Given the full operational control by the state as well as permanent and extraordinary support from the state, ACRA assesses the ties between the Corporation and the state as very strong.
Key assumptions
- Maintained state shareholder and operational control over the Corporation;
- Capital injections by the state high in order for the Corporation to meet all of its financial obligations.
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:
- Loss of shareholder or operational control by the state;
- Change in companies controlled by the Corporation and a subsequent decline in its systemic importance for the state.
Rating components
SCA: none.
Adjustments: none.
Support: on par with the Russian Federation.
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.
The credit rating assigned to Rostec State Corporation was first published by ACRA on August 30, 2018. The credit rating and its outlook are expected to be revised within one year following the publication date of this press release.
The assigned credit rating is based on the data provided by Rostec State Corporation, information from publicly available sources, as well as ACRA’s own databases. The credit rating is solicited, and Rostec State Corporation participated in its assignment.
No material discrepancies between the provided data and the data officially disclosed by Rostec State Corporation in its financial statements have been discovered.
ACRA provided additional services to Rostec State Corporation. No conflicts of interest were discovered in the course of credit rating assignment.
