The credit rating of DME Limited (hereinafter, the Company, the Group, the Airport, or Domodedovo) reflects the Company’s success in maintaining its strong business profile, which allowed it to demonstrate a minimum fall in passenger traffic in 2020 compared to other airports of the Moscow Aviation Hub (MAH), and rapid recovery in 2021. In 2022, ACRA expects the Airport to maintain domestic passenger traffic at the 2021 level coupled with a decline in passenger traffic on international routes by no more than 30%.
High leverage continues to put pressure on the Company’s financial profile. Despite it declining in 2021, this indicator may increase in 2022 on the back of a weaker ruble and a high share of foreign currency liabilities. Large debt repayments expected in 2022 and 2023 act as an additional significant constraint on the financial profile assessment.
DME Limited is a group of companies that owns and operates Domodedovo Airport, the second largest airport in Russia in terms of passenger and cargo volume.
key assessment factors
The Company’s operating and financial indicators face new uncertainty. In 2021, the Airport practically fully recovered from the negative impact of the restrictions related to the COVID-19 pandemic. Domodedovo’s passenger traffic was 25.1 mln people in 2021, which is 89% of the indicator for 2019 (the best result of the MAH). According to ACRA’s estimates, the Company’s revenues in 2021 amounted to RUB 32.5 bln (87% of 2019 revenues). The Company’s effective work with operating expenses prevented its profitability from declining significantly in the crisis year of 2020 — FFO profitability before net interest payments and taxes was 35%. The Agency estimates this indicator may amount to 39% for 2021.
ACRA notes that recovery of Domodedovo’s operations took place largely due to the domestic transport segment, the share of which grew from 58% in 2019 to 80% in 2021. The share of international destinations will continue to decline in 2022 against the backdrop of restrictions on flights for a number of international routes. As a result, ACRA believes international air travel via Domodedovo may decline by up to 30% compared to 2021. Amid these restrictions, and also taking into account the macroeconomic and geopolitical situation, the Agency expects a certain flow of traffic from more expensive foreign tourist destinations in favor of more affordable options (Turkey and Egypt, which may become the main countries in the Airport’s international segment). Besides this, part of international passenger traffic may be redistributed to domestic destinations, which when combined with state support measures is capable of maintaining the volume of domestic passenger traffic at no lower than the level recorded in 2021. At the same time, ACRA will carefully monitor the situation surrounding the fleets of Russian airlines from the point of view of the sufficiency of carrying capacity for the planned traffic volumes. Despite the possibility of Domodedovo maintaining passenger traffic at the 2021 level in 2022, ACRA understands that the reduction of the more profitable international segment may have a negative impact on the Airport’s revenues and profitability.
Leverage is still high. As of December 31, 2021, Domodedovo’s financial debt included two Eurobond issues, two issues of ruble-denominated bonds, and a loan from Raiffeisen Bank International AG. Total debt amounted to RUB 65.9 bln. The ratio of total debt to FFO before net interest payments declined to 5.7x in 2021 compared to 8.9x in 2020 due to the recovery of financial and operating indicators. As 77% of this debt was foreign currency liabilities as of December 31, 2021, Domodedovo’s leverage will largely depend on the ruble exchange rate, and in 2022 the ratio of total debt to FFO before net interest payments may again exceed 6.0x.
Coverage of the Airport’s interest payments has improved along with the reduction of leverage. Consequently, in 2021 the ratio of FFO before net interest payments to interest payments was 3.2x (1.9x in 2020). As current debt is refinanced against the backdrop of increased interest rates, ACRA forecasts a decrease in this indicator, but does not expect it to fall below 2.0x.
Medium liquidity assessment. Domodedovo is scheduled to redeem two issues of ruble bonds in 2022 and one Eurobond issue in 2023, which together make up around 45% of the Company’s financial debt. The Company has opened a credit line at a Russian bank to refinance its ruble bonds. The procedure for refinancing the Eurobonds is yet to be determined. The possible non-payment of dividends in 2022 may support Domodedovo’s free cash flow, which may serve as a source of liquidity for the Company.
KEY ASSUMPTIONS
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Passenger traffic on domestic flights in 2022 at the same level as 2021;
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Passenger traffic on international flights declining by 30% compared to 2021;
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No dividend payments in 2022;
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Annual average USD/RUB exchange rate at 80–100 in 2022–2023;
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Access to external liquidity sources to refinance bonds and Eurobonds.
potential outlook or rating change factors
The Stable outlook assumes that the rating will highly likely stay unchanged within the 12 to 18-month horizon.
A positive rating action may be prompted by:
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Stabilization of the weighted average ratio of total debt to FFO before net interest payments below 6.0x;
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Weighted average ratio of FFO before net interest payments to interest payments exceeding 5.0x.
A negative rating action may be prompted by:
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Weighted average ratio of FFO before net interest payments to interest payments maintained below 2.5x;
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Weighted average ratio of total debt to FFO before net interest payments exceeding 6.0x;
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Deteriorating access to sources of external liquidity.
rating components
Standalone creditworthiness assessment (SCA): a-.
Support: none.
issue ratings
Bond issued by Domodedovo Fuel Facilities Ltd., series 001P-01 (RU000A0ZYM21), maturity date: December 20, 2022, issue volume: RUB 10 bln — A-(RU);
Bond issued by Domodedovo Fuel Facilities Ltd., series 001P-02 (RU000A100J18), maturity date: June 30, 2022, issue volume: RUB 5 bln — A-(RU).
Rationale. The bond issues are senior unsecured debt obligations of Domodedovo Fuel Facilities Ltd. (hereinafter, the Issuer), which is an operational subsidiary of Domodedovo. The credit ratings were assigned on the basis of public irrevocable offers from DME Limited as a holding company and from key operational companies of the holding company generating the bulk of the Group’s cash flow. The list of offerers is identical to the list of companies acting as sureties under Eurobonds issued by the Group, which, in ACRA’s opinion, is indicative of the absence of structural subordination of the issues. Therefore, and in view of the absence of contractual subordination, ACRA ranks the bonds pari passu with other existing and future unsecured and unsubordinated obligations of the Company. At the same time, ACRA notes the lack of a suretyship from the owner of Domodedovo’s assets — Hacienda Limited (Cyprus) — with respect to both the rated bond issues and Eurobonds. In view of the above, ACRA used the detailed approach to assess the loss recovery rate. According to ACRA’s methodology, the recovery rate for Domodedovo’s unsecured debt is classified as category II, and therefore, the credit ratings of the issues are on par with the credit rating of DME Limited — A-(RU).
regulatory disclosure
The credit ratings of DME Limited and the bonds (ISIN RU000A0ZYM21, RU000A100J18) issued by Domodedovo Fuel Facilities Ltd., a subsidiary of DME Limited, have been assigned 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 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 on the National Scale for the Russian Federation was also applied to assign credit ratings to the above issues.
The credit ratings of DME Limited and the bonds (ISIN RU000A0ZYM21, RU000A100J18) issued by Domodedovo Fuel Facilities Ltd. were published by ACRA for the first time on November 29, 2017, December 26, 2017, and July 4, 2019, respectively. The credit rating and outlook of DME Limited and the credit ratings of the bonds (ISIN RU000A0ZYM21, RU000A100J18) issued by Domodedovo Fuel Facilities Ltd. are expected to be revised within one year following the publication date of this press release.
The credit ratings were assigned based on data provided by DME Limited, information from publicly available sources, and ACRA’s own databases. The credit ratings are solicited, and DME Limited 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 no additional services to DME Limited and Domodedovo Fuel Facilities Ltd. No conflicts of interest were discovered in the course of credit rating assignment.
