ACRA has upgraded the credit rating of Tatneftekhim LLC (hereinafter, Tatneftekhim, or the Company) based on the improvement of corporate governance practices and the higher score for the size of the Company’s business. The rating reflects the medium assessments of the operational risk profile, profitability, debt service, liquidity, and cash flow. The rating is constrained by the low assessment of the industry risk profile due to the high volatility of the wholesale trade sector that the Company is part of, as well as the below-medium size of business.
Tatneftekhim is a trading company, which is small by the standards of the Russian corporate sector; it is focused on the wholesale of fuels and lubricants. In addition to production assets, the Company has its own infrastructure, which expands its abilities in trade and transshipment of oil and oil products.
Key assessment factors
Corporate governance practices have improved and the business size assessment has been increased. In 2023, the Company for the first time published IFRS financial reporting, which is reflected in the Agency upgrading its assessment of financial transparency. In addition, taking into account the analysis of IFRS data, ACRA upgraded its assessment of the group structure.
As of the end of H1 2023, Tatneftekhim had recorded significant growth of sales in both monetary and physical terms. Given the operating and financial results of the Company for the first half of the year, the Agency expects revenues to grow by more than 70% by the end of the year, with FFO exceeding RUB 500 mln according to its estimates.
The medium business profile assessment is based on the low cyclicality of the key sales market (the wholesale market of fuels and lubricants) and reflects the fact that the Company has its own diesel fuel production assets. The share of diesel fuel produced by the Company in its revenues was 47% in H1 2023. Tatneftekhim also has its own infrastructure, which is positive for profitability and contributes to the high growth rates of the Company’s revenues and FFO. The Agency notes the Company’s diversified client base and the moderate credit quality of its counterparties.
Low leverage and medium interest payment coverage. The Company’s loan portfolio includes bank credit facilities and bond issues. Public debt is represented by two bond issues worth RUB 300 mln each that are due in 2023 (option for the RU000A103UL3 issue) and 2024 (RU000A103B05 issue). ACRA notes that at the end of 2022, the ratio of long-term debt to FFO before fixed payments was 1.5x, and the ratio of short-term debt to revenues was 0.08x (according to IFRS financial reporting). The ratio of FFO before net interest payments to interest payments amounted to 2.85x in 2022, while the weighted average indicator for 2020–2025 is assessed by the Agency at 4.1x.
Medium assessment of liquidity and free cash flow (FCF). As of the end of August 2023, Tatneftekhim had about RUB 300 mln in free and available credit limits, which when coupled with expected FCF and cash on the balance sheet, and taking into account the debt repayment schedule (including the bond issue option in October 2023), allow the Agency to assess the Company’s liquidity as adequate. The medium cash flow indicator is due to investments in working capital against the backdrop of rapid revenue growth. FCF was close to zero in 2022, but in ACRA’s opinion, the Company can manage liquidity through its working capital if necessary.
Key assumptions
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The Company developing in accordance with its strategy;
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Further development of the Company’s own diesel fuel production assets.
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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Weighted average ratio of FFO before net interest payments to interest payments exceeding 5.0x;
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Revenues exceeding RUB 25 bln coupled the with weighted average ratio of long-term debt to FFO before fixed payments falling below 1.0x.
A negative rating action may be prompted by:
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Ratio of long-term debt to FFO before fixed payments exceeding 2.0x;
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Ratio of FFO before net interest payments to interest payments falling below 2.5x.
Rating components
Standalone creditworthiness assessment (SCA): bb+.
Adjustments: none.
Issue ratings
No outstanding issues have been rated.
REGULATORY DISCLOSURE
The credit rating has been assigned to Tatneftekhim LLC 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 credit rating of Tatneftekhim LLC was published by ACRA for the first time on June 21, 2021. The credit rating and its outlook are expected to be revised within one year following the publication date of this press release.
The credit rating was assigned based on data provided by Tatneftekhim LLC, information from publicly available sources, and ACRA’s own databases. The credit rating is solicited and Tatneftekhim LLC participated in its assignment.
In assigning the credit rating, ACRA used only information, the quality and reliability of which were, in ACRA’s opinion, appropriate and sufficient to apply the methodologies.
ACRA provided no additional services to Tatneftekhim LLC. No conflicts of interest were discovered in the course of credit rating assignment.
