The credit rating of PJSC FGC UES (hereinafter, the Company) is on par with the financial obligations of the Russian Government due to the high level of support to the Company from the state and the medium degree of dependence of the state and the Company from the same-type risk factors.
The Company's standalone creditworthiness assessment (SCA) of аа is primarily based on its specific role as a monopolistic operator of the Unified National Electrical Grid, which is a strategic electric power infrastructure, as well as the Company’s high business profitability, low leverage, and high liquidity. The Company’s negative free cash flow, which is a result of substantial capital investments as part of a major investment program aimed at improving the efficiency of fixed assets, limits the SCA.
The Company transmits electric power through high-voltage power transmission lines and provides connections to electrical grids. The Company is a natural monopoly, and its tariffs are subject to state regulation. Key consumers of the Company’s power transmission services include regional distribution companies, retail electricity supply companies, and large industrial enterprises, while technological connection services are consumed by power generating companies and large industrial consumers. PJSC ROSSETI owns 80.13% of the shares in the Company, 19.28% are in free float, and 0.59% are owned by the Federal Agency for State Property Management of the Russian Federation (Rosimushchestvo).
In 2020, the functions of the sole executive body of FGC UES were transferred to PJSC ROSSETI. At the same time, the shareholder agreement between PJSC ROSSETI and Rosimushchestvo on the procedure for managing and voting using shares in FGC UES remained in force.
Key assessment factors
High level of state support to the Company. The Company is a key element in Russia’s electric power infrastructure, and its hypothetical failure would lead to outages in vast areas. The Company is one of Russia’s systemically important organizations and has provided power infrastructure for key strategic projects such as the Olympic Games in Sochi, the Baikal-Amur Mainline, and the Trans-Siberian Railway, etc. The state has repeatedly provided financial support for such projects through contributions to authorized capital, as well as RUB 140 bln in infrastructure bond issues and their subsequent repurchase by State Development Corporation "VEB.RF". In accordance with Federal Law No. 35-FZ, dated March 26, 2003, “On the Electric Power Industry,” the state’s direct or indirect share in the Company may not be less than 50% plus one share. The state exercises shareholder and operational control over the Company.
An infrastructure monopoly facing a moderate regulatory risk. Regulatory risk for the Company is offset by the small share of its services in electricity prices (around 7%) and its high current tariff ensuring an average FFO before interest payments and taxes of 56%, which should mitigate negative consequences if tariffs are frozen. Sales risks are not substantial, as indicated by low levels of receivables overdue by more than three months, amounting to 2.1% of revenues in 2020. The Company’s investment program is extensive, as it accounts on average for around 48% of its revenues (taking into account the planned electric grid connections as part of the infrastructure project for expansion of the Eastern Space Range). Recent years have shown relative flexibility in the investment program, the scale of which can be significantly modified in adverse conditions. For example, it was reduced by 40% in 2014–2015.
Low leverage. As of September 30, 2021, the Company's debt portfolio amounted to RUB 226.5 bln. The debt is almost entirely represented by ruble-denominated loans with fixed and floating interest rates. The high cash flow coverage on interest payments partially offsets the floating interest rate risk on long-term bonds. In 2020, the ratio of gross debt (including pension liabilities) to FFO before net interest amounted to 1.96x, and in 2021–2022, the annual average ratio should amount to 2.7x (1.9x in 2019). The increase in debt is associated with the Company's investment program funded primarily by tariff sources.
Negative free cash flow and high liquidity. According to ACRA, the Company’s free cash flow will be negative in 2021–2023 (in 2019 it was RUB 7.4 bln, in 2020 it declined to -RUB 5 bln), primarily due to high capital costs. ACRA assesses the Company’s liquidity as high — debt to be repaid in the coming years will be moderate and the Company is able to take out new loans. The Company has wide access to external sources of liquidity. As of September 30, 2021, the Company had open credit lines equaling RUB 100 bln and a significant amount of funds held in bank accounts and deposits equaling RUB 56 bln.
Key assumptions
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Average tariff indexation rate and inflation rate of 4.0% and 4.2%, respectively, in 2021–2023;
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Implementation of the Company's capital investment program as planned;
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Dividends amounting to no more than 50% of IFRS or RAS net profit (whichever is higher).
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:
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Loss of state control over the Company, in particular, a breach of the shareholder agreement with PJSC ROSSETI;
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Significant decline in the systemic importance of the Company for the Russian economy;
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Substantial decrease in financial support from the state and an increase in payments (dividends, etc.) in favor of PJSC ROSSETI.
Rating components
Standalone creditworthiness assessment (SCA): aa.
Support: on par with the RF.
Issue ratings
Bond issued by PJSC FGC UES (RU000A0ZYJ91), maturity date: October 23, 2052, issue volume: RUB 10 bln — АAА(RU).
Bond issued by PJSC FGC UES (RU000A0ZZQN7), maturity date: October 19, 2023, issue volume: RUB 10 bln — АAА(RU).
Bond issued by PJSC FGC UES (RU000A101CL5), maturity date: January 11, 2035, issue volume: RUB 15 bln (actually issued amount: RUB 10 bln) — АAА(RU).
Bond issued by PJSC FGC UES (RU000A101LX1), maturity date: April 11, 2035, issue volume: RUB 15 bln (actually issued amount: RUB 10 bln) — АAА(RU).
Bond issued by PJSC FGC UES (RU000A1028T1), maturity date: October 2, 2035, issue volume: RUB 10 bln — АAА(RU).
Bond issued by PJSC FGC UES (RU000A1036S6), maturity date: May 21, 2036, issue volume: RUB 10 bln — АAА(RU).
Rationale. The issues listed above represent senior unsecured debt of the Company. Due to the absence of either structural or contractual subordination of the issues, ACRA regards them as pari passu with other existing and future unsecured and unsubordinated debt obligations of the Company. According to ACRA’s methodology, the credit rating of the issues is equivalent to that of the Company.
Regulatory disclosure
The credit ratings have been assigned to PJSC FGC UES and the bonds (ISIN RU000A0ZYJ91, ISIN RU000A0ZZQN7, ISIN RU000A101CL5, ISIN RU000A101LX1, ISIN RU000A1028T1, ISIN RU000A1036S6) issued by PJSC FGC UES under the national scale for the Russian Federation based on the Methodology for Credit Ratings Assignment to Non-Financial Corporations under the National Scale for the Russian Federation, the Methodology for Analyzing Rated Entities Associated with a State or a Group, and the Key Concepts Used by the Analytical Credit Rating Agency within the Scope of Its Rating Activities. In the process of credit rating assignment to the above issues, 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 issues.
The credit rating of PJSC FGC UES and the credit ratings of the bonds (ISIN RU000A0ZYJ91, ISIN RU000A0ZZQN7, ISIN RU000A101CL5, ISIN RU000A101LX1, ISIN RU000A1028T1, ISIN RU000A1036S6) issued by PJSC FGC UES were published by ACRA for the first time on November 28, 2017, December 12, 2017, October 25, 2018, January 30, 2020, April 29, 2020, October 10, 2020, and June 9, 20201, respectively.
The credit rating and credit rating outlook of PJSC FGC UES and the credit ratings of the bonds (ISIN RU000A0ZYJ91, ISIN RU000A0ZZQN7, ISIN RU000A101CL5, ISIN RU000A101LX1, ISIN RU000A1028T1, ISIN RU000A1036S6) issued by PJSC FGC UES 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 PJSC FGC UES, information from publicly available sources, as well as ACRA’s own databases. The rating analysis was performed using the IFRS consolidated financial statements of PJSC FGC UES. The credit ratings are solicited, and PJSC FGC UES participated in their assignment.
In assigning the credit ratings, ACRA used only information, the quality and reliability of which was, in ACRA's opinion, appropriate and sufficient to apply the methodologies.
ACRA provided additional services to PJSC FGC UES. No conflicts of interest were identified in the course of credit rating assignment.
