Credit rating rationale. The issue represents unsecured perpetual debt of Joint Stock Company “Russian Railways” (hereinafter, the Company). The terms of the issue provide that the Company may decide not to pay any coupon, without any liability for such non-payment. If this decision is made, investors will be compensated in accordance with Order of the Government of the Russian Federation No. 1260-р dated May 13, 2020, and Decree of the Government of the Russian Federation No. 1380 dated September 9, 20201. If the Company decides not to pay any coupon, State Development Corporation "VEB.RF" (ACRA rating — AAA(RU), outlook Stable; hereinafter, VEB.RF) will transfer funds, using subsidies provided by the Ministry of Transport of the Russian Federation, to an account opened for the issuer at the National Settlement Depository (NSD) for paying interest income to bondholders in compliance with the procedure and within the time limits specified by Russian legislation and issue documentation.
1 Decree of the Government of the Russian Federation No. 1380 dated September 9, 2020 “On the procedure for compensation of interest payments on bonds without determining the term of their redemption if the issuers of specified bonds decide to refuse to pay interest and amendments to Order of the Government of the Russian Federation No. 1260-р dated May 13, 2020.”
In accordance with ACRA’s methodology, if a borrower’s default on any financial obligations with debt characteristics does not lead to a default of a rated entity, the final rating of such financial obligations is to be set five notches below the issuer’s SCA. However, taking into account that lost income will be fully compensated to investors with subsidies from the Ministry of Transport of the Russian Federation through VEB.RF, the credit rating of the issue is set at AA+(RU), i. e. one notch below the issuer’s rating.
The credit rating of RZD is on par with that of the financial obligations of the Russian Government in view of the Company’s very high systemic importance for the Russian economy, and very high influence of the state on the Company. The Company is a natural monopoly, one of the largest global railway companies, which owns and operates railway infrastructure, rolling stock and locomotives in Russia. As of December 31, 2019, the Company’s consolidated IFRS revenue amounted to nearly RUB 2,508 bln, up 4% compared to a year earlier. The sole shareholder of the Company is the Russian Federation.
As of the end of 2019, the Company’s total debt to FFO before net interest ratio was 3.0x. ACRA expects this indicator to increase by the end of 2020 due to growth in the absolute value of debt (taking into account the perpetual bonds) and declining operating profits caused by the influence of the coronavirus pandemic on the Company’s passenger and freight traffic, but not exceed 5.5x, even taking into account the conservative operating profit forecast, which does not imply substantial improvement in H2 2020 compared to H1 2020. ACRA assesses the Company’s liquidity as very strong. The Company maintains a consistently high volume of funds in its accounts (around RUB 100 bln), while available undrawn credit lines amount to around RUB 1.3 tln. These funds are more than sufficient to refinance debt in the short term and the long term. The amount of debt to be repaid by the end of 2021 is around RUB 150 bln, taking into account ruble bond put options.
Key issue properties
| Borrower | Joint Stock Company “Russian Railways” |
| Issuer’s credit rating | AAA(RU), outlook Stable |
| Actual issuer | Joint Stock Company “Russian Railways” |
| Type of security | Perpetual callable uncertified non-convertible interest-bearing bond subject to centralized title registration, 001B-07 series |
| Issue volume | RUB 10 bln |
| ISIN | RU000A102GA7 |
| Placement start date | December 10, 2020 |
| Maturity date | Perpetual |
Regulatory disclosure
The credit rating has been assigned under the national scale for the Russian Federation based on the Methodology for Assigning Credit Ratings to Individual Issues of Financial Instruments on 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.
A credit rating has been assigned to 001B-07 series (RU000A102GA7) bond issued by Joint Stock Company “Russian Railways” for the first time. The credit rating is 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 Joint Stock Company “Russian Railways”, information from publicly available sources, as well as ACRA’s own databases. The credit rating is solicited, and Joint Stock Company “Russian Railways” participated in its assignment.
No material discrepancies between the provided data and the data officially disclosed by Joint Stock Company “Russian Railways” in its financial statements have been discovered.
ACRA provided additional services to Joint Stock Company “Russian Railways”. No conflicts of interest were discovered in the course of credit rating assignment.
