ACRA has affirmed the credit rating of “Federal Grid Company – ROSSETI”, PUBLIC JOINT-STOCK COMPANY (hereinafter, the Company) at AAA(RU), outlook Stable. The affirmation takes into account the fact the Company’s Charter was amended to change the name “Federal Grid Company of United Energy System”, PUBLIC JOINT-STOCK COMPANY to “Federal Grid Company – ROSSETI”, PUBLIC JOINT-STOCK COMPANY. The name change is associated with the ongoing reorganization of the corporate structure, under which PJSC ROSSETI (ACRA rating AAA(RU), outlook Stable), Kuban Trunk Networks JSC, Tomsk Trunk Networks OJSC, and DVEUK-ENES JSC will be merged with the Company. It is planned that the reorganization will be completed in Q1 2023. The rating also takes into account the fact that as part of the reorganization, as per Russian law, a number of shareholders will receive the right to present their stocks for repurchase, and creditors will be entitled to demand early debt repayment. Taking into account the credit quality of the Company, as well as its ties with the state, ACRA believes that the probability of significant materialization of the aforementioned risks is minimal.
The credit rating of 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 on homogenous risk factors.
The Company’s аа- standalone creditworthiness assessment (SCA) stems from its position as the monopoly manager of Russia’s electrical grid system, very high business profitability, low leverage, and high liquidity. The SCA is limited by substantial capital investments, among other things. When carrying out this rating analysis, ACRA proceeded from the assumption that the current reorganization will be completed on time and all the functions of PJSC ROSSETI will be transferred to the Company. This analysis is largely based on projections, given that the values of the Company’s assessment factors will change considerably after reorganization. The Company’s SCA has been changed due to its assessment profile approaching that of PJSC ROSSETI as a result of the transfer of functions to manage electricity supply grids via subsidiaries.
Following the reorganization, the Company will become the monopoly operator of Russia’s main and distribution electrical grid system. Electricity transmission services are a natural monopoly and are regulated by state tariffs. The controlling shareholder of the Company, with a share of no less than 75% plus one stock, will be the state represented by the Federal Agency for State Property Management (Rosimushchestvo).
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 failure would influence the electricity supply in entire regions. 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 provided financial support for the implementation of some of the Company’s projects. For example, through contributions to authorized capital, as well as RUB 140 bln in bond issues and their subsequent repurchase by State Development Corporation “VEB.RF” (previously known as Vnesheconombank; ACRA rating AAA(RU), outlook Stable).
Infrastructure monopoly with moderate regulatory risk. Due to the high share of the electricity transmission tariff in the final electricity price, the state directly regulates electricity grid tariffs and pursues a policy of restraining network tariffs to constrain overall growth of electricity prices. At the same time, the regulatory system covers the Company’s operating and capital costs.
Low leverage. Practically all of the Company’s debt is denominated in rubles, and public borrowings account for more than half of it. According to ACRA’s projections, the average value of the Company’s total debt to FFO before net interest payments will be 2.4x in 2022–2024. The Company’s investment program is expected to grow due to the provision of electricity of the Eastern Section of JSCO “RZD” (ACRA rating AAA(RU), outlook Stable), which will lead to higher leverage.
Free cash flow and liquidity. ACRA expects the Company’s free cash flow to be under significant pressure from high capital expenditures in 2022–2024. At the same time, the Company has wide access to external sources of liquidity (as of September 30, 2022, the Company had open credit lines equaling RUB 868 bln and a significant amount of funds held in bank accounts and deposits).
key assumptions
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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 adjusted IFRS or RAS net profit (whichever is higher);
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Maintaining existing access to external liquidity sources in 2023–2024.
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 negative rating action may be prompted by:
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Loss of state control over the Company or lower systemic importance for the Russian economy;
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Substantial decrease of financial support from the state and an increase in payments (dividends, etc.);
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Growth of investment obligations coupled with lower electricity transmission tariffs;
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Significant deterioration of access to external liquidity sources.
rating components
SCA: аа-.
Support: on par with the RF.
ISSUE RATINGS
Bonds of “Federal Grid Company – ROSSETI”, PUBLIC JOINT-STOCK COMPANY (RU000A1056S4), maturity date: August 10, 2057, issue volume: RUB 10 bln — АAА(RU).
Bonds of “Federal Grid Company – ROSSETI”, PUBLIC JOINT-STOCK COMPANY (RU000A105559), maturity date: August 18, 2032, issue volume: RUB 15 bln — AAA(RU).
Bonds of “Federal Grid Company – ROSSETI”, PUBLIC JOINT-STOCK COMPANY (RU000A0ZZQN7), maturity date: October 19, 2023, issue volume: RUB 10 bln — АAА(RU).
Bonds of “Federal Grid Company – ROSSETI”, PUBLIC JOINT-STOCK COMPANY (RU000A1028T1), maturity date: October 2, 2035, issue volume: RUB 10 bln — AAA(RU).
Bonds of “Federal Grid Company – ROSSETI”, PUBLIC JOINT-STOCK COMPANY (RU000A101CL5), maturity date: January 11, 2035, issue volume: RUB 15 bln (actual issued amount: RUB 10 bln) — АAА(RU).
Bonds of “Federal Grid Company – ROSSETI”, PUBLIC JOINT-STOCK COMPANY (RU000A101LX1), maturity date: April 11, 2035, issue volume: RUB 15 bln (actual issued amount: RUB 10 bln) — АAА(RU).
Bonds of “Federal Grid Company – ROSSETI”, PUBLIC JOINT-STOCK COMPANY (RU000A0ZYJ91), maturity date: October 23, 2052, issue volume: RUB 10 bln (actual issued amount: RUB 7 bln) — АAА(RU).
Bonds of “Federal Grid Company – ROSSETI”, PUBLIC JOINT-STOCK COMPANY (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 to 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 “Federal Grid Company – ROSSETI”, PUBLIC JOINT-STOCK COMPANY and the bonds (ISIN RU000A105559, ISIN RU000A1056S4, ISIN RU000A0ZYJ91, ISIN RU000A0ZZQN7, ISIN RU000A101CL5, ISIN RU000A101LX1, ISIN RU000A1028T1, ISIN RU000A1036S6) issued by “Federal Grid Company – ROSSETI”, PUBLIC JOINT-STOCK COMPANY 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, 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. The Methodology for Assigning Credit Ratings to Financial Instruments on the National Scale for the Russian Federation was also applied to assign the credit ratings to the above issues.
The credit rating of “Federal Grid Company – ROSSETI”, PUBLIC JOINT-STOCK COMPANY and the credit ratings of the bonds (ISIN RU000A0ZYJ91, ISIN RU000A0ZZQN7, ISIN RU000A101CL5, ISIN RU000A101LX1, ISIN RU000A1028T1, ISIN RU000A1036S6, ISIN RU000A105559, ISIN RU000A1056S4) issued by “Federal Grid Company – ROSSETI”, PUBLIC JOINT-STOCK COMPANY 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 20, 2020, June 9, 2021, August 31, 2022, and September 23, 2022, respectively.
The credit rating of “Federal Grid Company – ROSSETI”, PUBLIC JOINT-STOCK COMPANY and its outlook and the credit ratings of the bonds (ISIN RU000A0ZYJ91, ISIN RU000A0ZZQN7, ISIN RU000A101CL5, ISIN RU000A101LX1, ISIN RU000A1028T1, ISIN RU000A1036S6, ISIN RU000A1056S4, ISIN RU000A105559) issued by “Federal Grid Company – ROSSETI”, PUBLIC JOINT-STOCK COMPANY 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 “Federal Grid Company – ROSSETI”, PUBLIC JOINT-STOCK COMPANY, information from publicly available sources, and ACRA’s own databases. The credit ratings were assigned based on IFRS consolidated financial statements. The credit ratings are solicited and “Federal Grid Company – ROSSETI”, PUBLIC JOINT-STOCK COMPANY participated in their assignment.
In assigning the credit ratings, ACRA used only information, the quality and reliability of which were, in ACRA’s opinion, appropriate and sufficient to apply the methodologies.
ACRA provided additional services to “Federal Grid Company – ROSSETI”, PUBLIC JOINT-STOCK COMPANY. No conflicts of interest were discovered in the course of credit rating assignment.
