ACRA CONFIRMS COMPLIANCE OF SINARA TRANSPORTATION’S SERIES 001P-02 BOND ISSUE WITH THE ICMA’S GREEN BOND PRINCIPLES AND THE NATIONAL GREEN BOND STANDARDS

 acra has confirmed the compliance of sinara transportation’s series 001p-02 bond issue with the international capital market association’s (icma) green bond principles and national standards; it has CONFIRMED THE COMPLIANCE OF THE PROJECT FINANCED as part OF THIS ISSUE WITH INTERNATIONALLY RECOGNIZED PRINCIPLES AND STANDARDS IN THE FIELD OF ECOLOGY AND GREEN FINANCING

compliance of the issue with Regulation of the Bank of Russia dated December 19, 2019 No. 706-P

As part of the series 001P-002 (ISIN RU000A103G00) bond issue of SINARA TRANSPORTATION (hereinafter, the Issuer, or the Initiator) ACRA verified the compliance of the bond issue with the internationally recognized goals, principles, standards, and criteria in the field of ecology and green financing (Green Bond Principles (GBP) of the ICMA), criteria of green financial instruments in accordance with Decree of the Government of the Russian Federation No. 1587 dated September 21, 2021, as well as compliance of the project financed using the proceeds from the bond issue with internationally recognized principles and standards in the field of ecology and green financing.

The project presented by the Issuer (see below and Appendix 1) fall into the ICMA project category clean transportation.

The projects correspond to the following areas of the Russian green project taxonomy:

5.1. Manufacture of railway transportation vehicles that use clean energy sources (passenger, cargo), purchase of railway transportation vehicles that use clean energy sources, migration of existing rolling stock to clean energy sources (manufacture of railway transportation using traction power supply).

Financing this area of projects through the issuance of green debt instruments is possible both in international and Russian practice.

According to the Issuer’s data, the project refers to the production of specific types of equipment (electric locomotives, electric trains) in an amount corresponding to the general production plan approved by the Issuer for 2021–2025.

The Supervisory Board for Financing Sustainable Development Projects of SINARA TRANSPORTATION (hereinafter, the Supervisory Board)¹ approved Project A², which is specified in Clause 8.1. of the Issue Decision, as a project for the purpose of financing which the equivalent of funds received from the placement of green exchange-traded bonds can be used.

The Issuer confirmed to the Agency that during the implementation of Project A, the following amount of environmentally friendly equipment provided for by the project was produced and put into operation for the main buyer of the products:

Sources: ACRA, Issuer’s data

According to data provided by the Issuer, the quantitative indicators of project implementation have been fully achieved: the amount of equipment produced by STM holding (SINARA TRANSPORTATION and the companies controlled by it) and put into operation exceeded the minimum set in the Issue Decision.

The implementation of this project (taking into account the actual quantity of equipment produced and the calculation model) allowed positive environmental effects to be achieved (calculations of the achieved effect were made for the period from the date of the actual end of the placement of securities to the end of the last reporting period), which is expressed in the following³:

• For the production and commissioning of electric freight locomotives: reduction of direct greenhouse gas emissions by at least 109,066.7 tons of CO₂ equivalent; reduction of energy consumption by at least 1,471.9 TJ (see the section ‘Key assumptions for calculating environmental effects’).

• For the production and commissioning of electric passenger trains: reduction of direct greenhouse gas emissions by at least 1,052.7 tons of CO₂ equivalent; reduction of energy consumption by at least 15.1 TJ (see the section ‘Key assumptions for calculating environmental effects’).

A complete description of the project that the Issuer plans to finance using the analyzed green bond issue, as well as a description of the environmental effect, is provided in Appendix 1.

ACRA confirms that the project financed through the issuance of green bonds complies with all the basic internationally recognized principles and standards in the field of ecology and green financing set out by the ICMA in 2021 (2021 GBP).

¹ Minutes No. 2 dd. September 15, 2021.
² As of the issue of green bonds, the projects had not been fully determined by the Issue (see the previous conclusion: https://www.acra-ratings.ru/press-releases/2651/?lang=en).
³ The environmental effects achieved during the operation of the manufactured equipment were determined by the Issuer on the basis of calculated data determined by the Green Bond Framework, based on a month of operation of each unit of equipment after its transfer by SINARA TRANSPORTATION to the buyer.

COMPLIANCE OF THE ISSUE WITH THE ICMA’S GREEN BOND PRINCIPLES

ACRA confirms that the Issuer’s bond issue continues to comply with all the basic components of the ICMA’s 2021 GBP. The area in which proceeds will be used (project that is financed through the issue of bonds to achieve objectives that comply with ICMA project categories and has a positive environmental effect), process of evaluating and selecting projects, and management of proceeds and reporting presented in the SINARA TRANSPORTATION Green Bond Concept ⁴  (hereinafter, the Concept) are fully in line with the 2021 GBP criteria, and consequently the planned bond issue can be considered as green.

key issue properties

Sources: ACRA, Issuer’s data

SINARA TRANSPORTATION is a divisional machine-building holding of Sinara Group, established in 2007, which specializes in railroad machine-building (production of electric locomotives, diesel locomotives, track equipment and diesel engines). STM Group’s operations also include service and engineering in the field of railroad machine-building. STM Group is actively investing in the development of technology for the production of more environmentally friendly and energy efficient equipment.

The Concept was adopted in 2021. It outlines the Issuer’s approaches to the procedure for preparing and placing green bonds: it describes the process of selection of projects; indicates permitted areas for the use of funds (in accordance with the national green project taxonomy and ICMA’s eligible project categories); and describes the approaches to managing attracted funds, as well as the principles of verification and reporting.

⁴ https://sinaratm.ru/upload/iblock/82b/Kontseptsiya-vypuska-zelenykh-obligatsiy_-utverzhdena-12.07.2021.pdf.

KEY ASSESSMENT FACTORS

The Issuer provided ACRA with documents containing project eligibility criteria that can be included in the green bond issue, a description of the project selection process, approaches to managing proceeds, and the final report on the use of proceeds, as well as achieved environmental effects. ACRA confirmed its conclusions on the compliance of the bond issue with the four components of the 2021 GBP based on these documents.

Use of proceeds

The objectives of the issuance of green bonds are formulated and comply with the 2021 GBP. The proceeds from the issuance of these bonds will be used to finance a project that is aimed at preserving and protecting the environment and having a positive impact on it, as well as preventing climate change, and is consistent with internationally recognized goals, principles, standards and criteria in the field of ecology and green finance, as well as the goals and main areas of sustainable (including green) development of the Russian Federation and criteria for sustainable (including green) development projects in the Russian Federation (green project taxonomy) (see Appendix 1).

The Supervisory Board approved Project A indicated in Clause 8.1. of the Issue Decision, as a project for the purpose of financing which the equivalent of funds received from the placement of green exchange-traded bonds can be used. The description of the equipment produced under Project A is provided on page 2 of this press release.

The Issuer confirmed to the Agency that from the date of the actual end of the placement of securities (July 28, 2021) to December 31, 2021, it transferred RUB 10,149 mln to Ural Locomotives LLC (a member of the STM Group and controlled by the Issuer), which carries out the production of environmentally friendly rail transport provided for by the project.

At the same time, the total funds, including funds raised by the issue of green bonds and funds from other sources, were distributed as follows during the period from August to December 2021:

• RUB 16,129 mln were directed to financing operating expenses and investment activities for the production of electric locomotives 2ES6 with booster section, 2ES7, and 2ES10 with booster section;

• RUB 8,758 mln were directed to financing operating expenses and investment activities for the production of ES2G electric passenger trains.

• Clean transportation.

The Issuer provided the Agency with:

(1)    Information about project implementation, including its goal and a short description, as well as environmental impact.

(2)    The Concept;

(3)    The Agency’s questionnaire filled out by the Issuer;

(4)    Minutes documenting the decisions of the Supervisory Board;

(5)    Information about production costs for the equipment in according with the Issuer’s production plan.

The Agency notes that the project financed by the Issuer does not have significant negative effects on the environment (Do No Significant Harm principle): environmental protection law of the Russian Federation is observed when implementing the project. In addition, the specifics of the financed project do not imply additional environmental expertise.

The environmental effects from implementing the project in accordance with the model calculations are provided on page 2 and Appendix 1 of this press release.

The Issuer identified reduction in energy consumption and reduction in greenhouse gas emissions during the operation of equipment, the production of which is financed by the issuance of the green bonds as environmental effects.

The buyer of the abovementioned equipment is determining an environmental strategy until 2030, under which it is planned to broaden electric traction use. The Issuer confirmed to the Agency that all the manufactured equipment has been put into operation. It is expected that high-quality environmental effects will be achieved during the service life and operation of the equipment.

Data on the use of the equipment is not provided in the Issuer’s report because the main buyer had not disclosed this information as of the report creation date.

ACRA considers the calculations and key assumptions made by the Issuer to calculate the expected environmental effect produced by the project to be acceptable. At the same time, the Agency expects that when calculating the actual achieved environmental effect, data on the actual reduction energy consumption, as well as on the reduction of greenhouse gases when operating the equipment, the production of which is financed by using the proceeds from the green bond issue, will be used when publishing all the necessary information by the main buyer of the products (see Key assumptions for calculating environmental effects).

An additional description of the project financed using the proceeds from the green bond issue is given in Appendix 1.

Process of evaluating and selecting projects

The Issuer’s process of evaluating and selecting projects has not changed since the placement of the green bond issue. This process is fully described in the Concept.

The Issuer has created the Supervisory Board and a working group for green project selection (hereinafter, the Working Group). The Working Group includes representatives of the units responsible for project finance, investor and bank relations, economics, finances, technical issues, product development, accounting, divisions responsible for personnel management and training, motivation and social issues, the center for analysis and management of optimization programs, as well as other departments, including those responsible for environmental issues within STM Group.

The functional responsibilities of the Working Group include the assessment of compliance with the standards of green financing of potential investment projects and the production of green products. According to the Concept, suitable green projects should correspond to the following category of acceptable green projects in accordance with the ICMA’s green bond principles:

• Clean transportation.

In accordance with the Concept, the Working Group supports the issue of green bonds, submits recommendations on the list of projects financed by green bonds, on the preparation of documents required for the issue, and on the preparation of reports on the expenditure of funds received from the issue of green bonds. The Supervisory Board approves the final list of projects financed by the bond issue.

For the analyzed issue, in accordance with the procedure described above, the abovementioned project (Project A) was identified. The corresponding decision was recorded by the Decision of the Issuer’s Supervisory Board (Minutes No. 2 dated September 15, 2021).

In ACRA’s opinion, the described algorithm is evidence of an efficient process of project evaluation and selection.

Management of proceeds

Since the placement of the analyzed green bond issue, the process of managing the proceeds generated by their issue has not changed. The process is described in full in the Concept.

In accordance with the Concept, STM Group allocates the equivalent of the funds received from the placement of green bonds to fully finance the stated projects and prepare appropriate reports on the use of funds.

In addition, STM Group keeps a record of expenses incurred within the framework of announced projects and monitors the compliance of these expenses with cash receipts from bonds on an annual basis. The Supervisory Board is responsible for the targeted use of funds.

As part of the green bond issue under consideration, STM Group sent the equivalent amount of funds received from the placement of exchange-traded bonds to finance Project A in full, which was confirmed to the Agency.

From the date of the actual end of the placement of securities (July 28, 2021) to the end of the reporting period (December 31, 2021), the Issuer transferred RUB 10,149 mln to Ural Locomotives LLC (a member of the STM Group and controlled by the Issuer), which carries out the production of environmentally friendly rail transport provided for by the project.

At the end of the reporting period, 100% of the funds received from the placement of exchange-traded bonds were allocated for the implementation of the project. There is no unspent balance of funds, and therefore management of unallocated funds was not required.

In the Agency’s opinion, the procedure for managing proceeds from the issue of green bonds generally complies with the 2021 GBP.

Reporting

As of the issue of the analyzed green bond issuer, the Issuer indicated in the Concept that it plans to publish annual reports on the placed bonds at https://e-disclosure.ru/portal/company.aspx?id=13378, as well as on the website of the Moscow Exchange.

These reports were provided on time and published by the Issuer in full.

The Issuer’s report for 12 months of 2022, published at https://e-disclosure.ru/portal/company.aspx?id=13378 contains information required for disclosure for issuers of green bonds:

• Name and brief description of the project financed using proceeds from the green bond issue;

•  Approved amount of funds allocated for the project out of the bond proceeds;

•  Share of funds allocated for the project from other sources;

•  Spending (allocation) of funds raised by the bond issue;

• Spending (allocation) of funds raised by the bond issue in the reporting period;

• Information on the management of non-allocated funds;

• Information on attaining qualitative and quantitative indicators of the project specified in the Issue Decision (including the actual quantity of equipment produced under the project);

• Information confirming the implementation of the project described in the Issue Decision and actual use of all proceeds received from the issue of the bonds;

• Information on the project progress as of the end of the reporting date.

ACRA considers the information and information provided in these reports to be sufficient and trustworthy. In the Agency’s opinion, the reporting fully complies with the 2021 GBP.

⁵ https://www.moex.com/s3019

Additional assessment factors

Organizational structure and strategy

The Issuer hired a third-party advisor (ESG Advisory, the consulting division of Bank GPB (JSC) in order to prepare the Concept and structure the issue transaction. Additionally, in order to prepare for the implementation of the transaction for issuing green bonds, the Issuer set up the Supervisory Board and the Working Group.

As part of the Concept, the Issuer formulated a set of quantitative indicators, which were planned to be achieved during the implementation of the funded projects: 1) reduction of direct CO₂ emissions (annually); 2) reduction of energy consumption (annually).

Within the framework of its production plans, STM Group strives to increase the production of more environmentally friendly types of equipment, which is confirmed by the planned increase in revenue from the sale and maintenance of green equipment by more than 1.5 times in the period from 2020 to 2023.

Under the Concept, the Issuer expressed its commitment to the UN Sustainable Development Goals (SDGs) and defined a set of the SDGs, the achievement of which, according to the Issuer, is contributed to by the Issuer’s main activities; their practical implementation has been started. Currently, the Issuer is aligning its sustainable development goals, objectives and methodology with the UN SDGs to determine the priorities to which STM Group is able to contribute the most. STM Group’s sustainable development strategy is being developed for further approval and publication. The commitment to the SDGs will be regulated by the approved development strategy and disclosed on the Issuer’s website.

Financial feasibility of projects

In the case of this green bond issue, a project means the production of specific types of equipment, which are listed in the production plan approved by STM Group for 2021–2025. The amount of equipment produced by STM Group and delivered to the main purchaser has exceeded the minimum set in the Issue Decision; therefore, the Agency believes that the financial feasibility of the projects is high.

key assumptions

• Targeted use of proceeds received from the placement of green bonds.

KEY ASSUMPTIONS FOR ESTIMATING ENVIRONMENTAL EFFECTS

• To compare specific CO₂ emissions (gram of CO₂ per passenger-kilometer/ton-kilometer) from electric locomotives and electric trains, the following types of transportation were used: road transportation (LDV commercial; HDV large); rail transportation (diesel; electric); sea transportation (barge; container ship (coastal); Container ship (ocean)); air transportation.

• When calculating the key effects, the following assumption was used: the annual mileage of one electric freight train is 100,000 km, and the value of the transported cargo is 8,000 tons (for electric locomotives).

• When calculating the key effects, the following assumption was used: the project assuming that the annual mileage of one electric passenger train/electric train will be 100,000 km, and the number of passengers will be 1,276. When calculating the potential for reducing energy consumption, the following assumption was used: the following types of fuel are burned for the corresponding types of transportation: diesel locomotives, water transportation — diesel fuel; motor transportation — gasoline; air transportation — aviation fuel.

•  When calculating the potential for reducing direct CO₂ emissions, only direct emissions from the operation of rolling stock were taken into account, i.e. not emissions from production of transportation units in question, emissions from the combustion of fuel required for production of electricity, which in turn is needed to power the rolling stock, as well as for the repair and subsequent disposal of this transportation.

• When calculating the reduction of direct CO₂ emissions and energy consumption, we did not take into account the parameters of the transportation units that are supposed to be replaced with the produced ones in the fleet of the end consumer of products.

assessment components

Compliance of the issue with the 2021 GBP: yes.

Assessment score: GR2.

additional information

The assessment of the bonds of SINARA TRANSPORTATION and the project financed as part of the bond issue for compliance with internationally recognized goals, principles, standards and criteria in the field of ecology and/or green financing (2021 GBP), as well as with the requirements for the verification system for sustainable (including green) development projects in the Russian Federation has been performed based on the Methodology for Green Debt Obligation Assessment with regard to green bond assessment.

The compliance assessment may be revised within one year following the publication date of this press release.

ACRA’s opinion on the compliance of the bonds of SINARA TRANSPORTATION and the project financed as part of such bond issue with internationally recognized goals, principles, standards and criteria in the field of ecology and/or green financing (2021 GBP) is based on data provided by SINARA TRANSPORTATION, information from publicly available sources, and ACRA’s own databases. The assessment of compliance of the bonds of SINARA TRANSPORTATION and the project financed as part of such bond issue with internationally recognized goals, principles, standards, and criteria in the field of ecology and/or green financing (2021 GBP) was solicited, and SINARA TRANSPORTATION participated in the assessment process.

In assigning the assessment, ACRA used only information, the quality and reliability of which were, in ACRA’s opinion, appropriate and sufficient to apply the methodologies.

No conflicts of interest were discovered in the course of the assessment process.

The assigned assessment is not a credit rating.

Appendix 1. Description of the project financed using the proceeds from the green bond issue 

Appendix 2. Compliance of the assessed bond issue with the criteria for compliance of a financial instrument with the requirements stipulated by Decree of the Government of the Russian Federation No. 1587 dated September 21, 2021 “On approval of criteria for sustainable (including green) development projects in the Russian Federation and requirements for the verification system for sustainable development financing instruments in the Russian Federation”

ACRA also verified the compliance of the issue and the project financed with the proceeds raised from the issue for compliance with the criteria stipulated by Decree of the Government of the Russian Federation No. 1587 dated September 21, 2021, and the criteria for green projects (Green Project Taxonomy).

Compliance opinion

The assessed financial instrument (bonds) complies with the criteria.

Assessment methodology

The assessment of the bond and the relevant project for compliance with internationally recognized principles and standards in the field of ecology and/or green financing, as well as the bonds themselves was carried out on the basis of the Methodology for Green Debt Obligation Assessment in terms of the assessment of green bonds.

Actions taken

For verification purposes, the verifier (ACRA) requested and reviewed the following documents presented by the Originator (Issuer):

(1)    Project description, including the goal, outline and environmental effects;

(2)    The Concept;

(3)    The Agency’s questionnaire completed by the Initiator;

(4)    Relevant resolutions of the Supervisory Board;

(5)    Production costs of the relevant equipment in accordance with the Issuer's production plan.

A series of interviews was held with the Initiator.

Confirmation of independence of the opinion and the absence of conflicts of interest or other circumstances hampering proper, objective and impartial analysis and judgement

See page 8 of this press release.

Confirmation of the type of sustainable development financial instrument declared by the Originator

Green finance instrument (green bonds).

Is the Originator liable for non-compliance of the sustainable development financial instrument with the requirements?

The Issuer has vested the bondholders with the right to demand early redemption of their bonds in the event of non-targeted use of proceeds.

Compliance of the sustainable development projects with one or more areas set by the sustainable development project criteria

5.1. Manufacture of railway transportation vehicles that use clean energy sources (passenger, cargo), purchase of railway transportation vehicles that use clean energy sources, migration of existing rolling stock to clean energy sources.

See Appendix 1.

Information about the Initiator and the sustainable development projects

SINARA TRANSPORTATION is a divisional machine-building holding of Sinara Group, established in 2007, which specializes in railroad machine-building (production of electric locomotives, diesel locomotives, track equipment and diesel engines). STM Group’s operations also include service and engineering in the field of railroad machine-building.

Areas and goals for refinancing the selected portfolio of green projects

Area: transportation and industrial machinery.

Goal: reduction of greenhouse gas emissions and energy consumption.

Compliance of the bond issue with the requirements set by the Bank of Russia in line with the law of the Russian Federation on securities issues for bonds whose issue or prospectus contains additional identification using the words ‘green bonds’

Yes (extended confirmation is provided on pages 1–2 of this press release).

Assessment of the compliance of the financed sustainable development project with the criteria for sustainable development projects:

Complies (see Appendix 1).

Analysis of the purposes for which the proceeds are used and the procedures for providing recommendations on the use and management of proceeds

Complies (see pages 3–5 of this press release).

Analysis of procedures for selection and approval of sustainable development projects

Complies (see page 5 of this press release).

Analysis of control over the implementation of sustainable development projects:

Complies (see pages 5–6 of this press release).

The implementation of this project (taking into account the actual quantity of equipment produced and the calculation model) allowed positive environmental effects to be achieved (calculations of the achieved effect were made for the period from the date of the actual end of the placement of securities to the end of the last reporting period), which is expressed in the following ⁶:

–           For the production and commissioning of electric freight locomotives: reduction of direct greenhouse gas emissions by at least 109,066.7 tons of CO₂ equivalent; reduction of energy consumption by at least 1,471.9 TJ (see the section ‘Key assumptions for calculating environmental effects’).

–           For the production and commissioning of electric passenger trains: reduction of direct greenhouse gas emissions by at least 1,052.7 tons of CO₂ equivalent; reduction of energy consumption by at least 15.1 TJ (see the section ‘Key assumptions for calculating environmental effects’).

Size of expected environmental effects of green projects

See Appendix 1.

Information about the presence (absence) of conflicts of interest and the independence of judgment.

No conflicts of interest were discovered in the course of the assessment process (see page 9 of this press release).

⁶ The environmental effects achieved during the operation of the manufactured equipment were determined by the Issuer on the basis of calculated data determined by the Green Bond Framework, based on a month of operation of each unit of equipment after its transfer by SINARA TRANSPORTATION to the buyer.