The credit rating of KAMAZ PTC (KAMAZ, or the Company) has been upgraded because the Company's revenue and profitability have improved last year, so that the Agency has upgraded the score for debt coverage.

The credit reflects the high assessment of government support to the Company, its strong market position, high level of corporate governance, very strong liquidity, as well as medium assessments of business profile, geographical diversification, business size, leverage, coverage, and cash flow.

KAMAZ is Russia's largest automobile corporation that is among top 20 world manufacturers of heavy-duty trucks and a leader in the Russian truck market. The Company offers a wide range of products including trucks, buses, electric buses, trailers and semitrailers, engines. In 2022, the Company's share in the segment of 14+ tons gross vehicle weight trucks was 42%, including a 59% market share in the chassis and specialty vehicles market, 28% in dump trucks, 78% in high-sided trucks, and 34% in tractor units.

KEY ASSESSMENT FACTORS

The level of state support is assessed as high. The Company is a key player in the Russian truck market, having strategic importance for the state in terms of ensuring transportation security. In addition, the motor vehicle industry demonstrates one of the highest multiplier effects: one job in this sector creates ten or more jobs in related industries. KAMAZ is a backbone enterprise in its location. The Company is a consistent recipient of very strong direct support from the government, including subsidized loans, property tax benefits, co-financing of research and development, state guarantees for loans and bond issues, subsidized interest rates on investment loans, subsidies for partial reimbursement of export transportation costs, subsidized financing of export contracts, etc.

Results of 2022 and expectations for 2023. In 2022, the Company's sales in the Russian market of trucks with a gross weight of over 14 tons declined from 79,000 to 75,000 vehicles, nevertheless having remained at a high level for the past eight years. The Company's market share amounted to 42%. Regardless a 2.7% decline in the sales volumes in physical terms, the Company increased the output of its classical models, having successfully localized the manufacture of components and substituted certain suppliers as part of cooperation in the manufacture of new models. This had a positive effect in the production costs, while growing prices (the average price of trucks sold by the Company increased by 16.4%) allowed KAMAZ to improve significantly its financial performance in 2022. The volume of exports amounted to 4,600 vehicles. The Company has plans to develop its exports further and to strengthen its positions on the target markets. In 2023, KAMAZ will continue to develop its K5 generation model range, including launching new models in various segments and bringing the annual production output of this model to 10,000 units.

Medium leverage and coverage. As the share of debt raised by the Company to finance lease payments is substantial, ACRA includes lease revenues in FFO when calculating the Company's leverage and coverage metrics. According to ACRA's estimates, the weighted average ratio of the Company’s total debt to FFO before net interest will be 3.9x in 2020–2025. Certain improvement in this indicator reflects the growth of FFO before net interest in 2022 and the expected gradual decline of the Company's total debt in the forecast period of 2023–2023. The weighted average ratio of total debt to equity for 2020–2025 will amount to 1.2x. The Agency also notes the very high qualitative assessment of the Company's debt, since its portfolio of loans is well-diversified by lenders and instruments (including corporate bonds, credit lines from commercial banks, loans from government and development institutions) and well-balanced by durations (78% of the debt is long-term obligations). Interest payments on a substantial portion of the Company’s liabilities are subsidized by the Russian government (70% to 90% of the key rate), and a number of loans have subsidized interest rates, which mitigates the effects of growing key rate on the leverage. The ratio of FFO before net interest to interest (excluding subsidies) amounted to 4.1x in 2022, while the weighted average ratio calculated for 2020–2025 grew to 3.6x against 2.3x a year ago.

The very strong liquidity is maintained by substantial cash held on Company’s accounts and a significant amount of committed but undrawn credit facilities (about RUB 70 bln). KAMAZ has a comfortable debt repayment schedule in the long-term, as well as diversified source of internal and external funding, including public offering in the stock market.

KEY ASSUMPTIONS

  • Retaining the high level of continuous government support.

  • Domestic sales of KAMAZ trucks with an 8+ tons gross vehicle weight at 36,000 units in 2023.

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:

  • The weighted-average ratio of FFO before net interest and tax exceeding RUB 30 bln and the weighted average FFO before interest and tax margin exceeding 10%;

  • The weighted average ratio of total debt to FFO before net interest declining below 3.5x and the weighted average ratio of FFO before net interest to interest exceeding 5.0x.

A negative rating action may be prompted by:

  • The weighted average ratio of FFO before net interest to interest declining below 2.5x;

  • The weighted-average ratio of total debt to FFO before net interest exceeding 5.0x.

RATING COMPONENTS

Standalone Creditworthiness Assessment (SCA): a-.

Support: state support, SCA + three notches.

ISSUE RATINGS

Exchange-traded interest-bearing certified bearer bonds of KAMAZ PTC, BO-07 series, maturity date: May 05, 2033, issue volume: RUB 3 bln — АА(RU).

Exchange-traded interest-bearing certified bearer bonds of KAMAZ PTC, BO-08 series, maturity date: May 05, 2033, issue volume: RUB 3 bln — АА(RU).

Exchange-traded interest-bearing certified bearer bonds of KAMAZ PTC, BO-09 series, maturity date: May 10, 2033, issue volume: RUB 3 bln — АА(RU).

Exchange-traded interest-bearing certified bearer bonds of KAMAZ PTC, BO-10 series, maturity date: May 10, 2033, issue volume: RUB 3 bln — АА(RU).

Exchange-traded interest-bearing certified bearer bonds of KAMAZ PTC, BO-11 series, maturity date: May 10, 2033, issue volume: RUB 3 bln — АА(RU).

Uncertified non-convertible exchange-traded interest-bearing bonds of KAMAZ PTC subject to centralized title registration, BO-P07 series, maturity date: June 7, 2023, issue volume: RUB 3 bln — АА-(RU).

Uncertified non-convertible interest-bearing bonds of KAMAZ PTC subject to centralized title registration, BO-P08 series, maturity date: July 10, 2023, issue volume: RUB 5 bln — АА-(RU).

Uncertified non-convertible exchange-traded interest-bearing green bonds of KAMAZ PTC subject to centralized title registration, BO-P09 series, maturity date: November 22, 2023, issue volume: RUB 2 bln — АА-(RU).

Uncertified non-convertible exchange-traded interest-bearing bonds of KAMAZ PTC subject to centralized title registration, BO-P10 series, maturity date: July 18, 2025, issue volume: RUB 7 bln — АА-(RU).

Credit rating rationale. The issues are senior unsecured debt instruments of KAMAZ. In view of the absence of either structural or contractual subordination of the issues, ACRA assesses these bonds pari passu with other existing and future unsecured and unsubordinated obligations of the Company. In accordance with ACRA's methodology, the Agency applied a detailed approach to determine issue ratings. According to ACRA's calculations, the recovery rate on the senior unsecured debt belongs to category I, therefore, the credit rating of the BO-P07, BO-P08, BO-P09 and BO-P10 series bond issues is on par with that of the Company — AA-(RU).

The principal amounts of the BO-07, BO-08, BO-09, BO-10 and BO-11 series bonds are secured by state guarantees, therefore ACRA applied a one-notch upward adjustment to the issue credit ratings against the Company's credit rating and assigned AА(RU) to the abovementioned bond issues.

Regulatory disclosure

The credit rating of KAMAZ PTC and the credit ratings of the bonds issued by KAMAZ PTC are assigned under the national scale for the Russian Federation and is 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. The Methodology for Assigning Credit Ratings to Financial Instruments under the National Scale of the Russian Federation was also applied to assign credit ratings to the above bond issues.

The credit rating assigned to KAMAZ PTC was published by ACRA for the first time on April 23, 2018; the credit ratings assigned to BO-07, BO-08, BO-09, BO-10 and BO-11 series bonds issued by KAMAZ PTC were published by ACRA for the first time on May 14, 2018. The credit ratings assigned to BO-P07, BO-P08, BO-P09, and BO-P10 series bonds issued by KAMAZ PTC were published by ACRA for the first time on June 10, 2020, July 12, 2021, November 24, 2021, and July 22, 2022, respectively. The credit rating of KAMAZ PTC and its outlook and the credit ratings of the above bonds issued by KAMAZ PTC are expected to be revised within one year following the publication date of this press release.

The credit ratings are based on the data provided by KAMAZ PTC, information from publicly available sources, and ACRA’s own databases. The credit ratings are solicited, and KAMAZ PTC 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 KAMAZ PTC. No conflicts of interest were identified in the course of credit rating assignment.

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