The credit rating of Joint Stock Company “Terminal Vladivostok” (hereinafter, Terminal Vladivostok, or the Company) reflects the Company’s strong financial risk profile based on high profitability, very low leverage, and very high liquidity metrics. Strong business profile indicators also support the credit rating. At the same time, these components are offset by the Company’s small size, relatively weak information disclosure practices, and multilevel group structure.
Terminal Vladivostok is the owner of a new passenger terminal (Terminal A) built at Vladivostok Airport as part of the preparations for the APEC Summit held in September 2012. Terminal A has completely replaced the airport’s outdated passenger terminal servicing international and domestic flights.
KEY ASSESSMENT FACTORS
Despite the crisis in the Russian aviation industry, ACRA has observed positive dynamics of the Company’s operating results in 2023. In the first nine months of this year, the total traffic of the Company amounted to 1.97 mln passengers, which is 22% higher than in the same period last year. Domestic traffic increased by 16% year-on-year and amounted to 1.8 mln passengers, while international traffic increased by more than three times to 125,000 passengers. Currently, the airports of central Russia (in particular, the airports of the Moscow Aviation Hub) are the most accessible logistics point for foreign flights, which stimulate an increase in domestic air traffic through Vladivostok Airport. The Agency assumes that this situation will continue in the medium term. ACRA expects the total traffic of the Company to reach 2.5 mln passengers in 2023 (+19% vs. 2022) and continue to grow at moderate rates in the future.
The Company is characterized by a strong market position and a high business profile assessment, which are offset by weak financial transparency and a multilevel group structure. Terminal Vladivostok is the only international airport complex in the Primorsky Krai, thanks to which the Company is a regional monopoly. The nearest international airport (Khabarovsk) is 640 kilometers from Vladivostok, which determines the Company’s strong market position in its region of presence.
ACRA assesses the regulatory risk for the Company as low because airfares are sufficiently transparent and economically justified, and they allow the Company to maintain high profitability.
The Company’s revenues are well diversified, since Terminal Vladivostok retained all the main types of airport and related services during the crisis period. The Agency expects the Company’s revenues to amount to RUB 1.5 bln by the end of 2023. Aviation services account for around 40% of revenues, while additional services account for around 60%. Nineteen airlines operate via Terminal Vladivostok, the largest of which are Aeroflot (around 40% of passenger traffic), S7 (25%), and Aurora (20%). On average, around 40% of passenger traffic is flights to and from Moscow. The only international destination is Tashkent. A high degree of uncertainty remains regarding the resumption of flights to other international destinations.
The degree of depreciation of the Company’s assets is quite moderate at about 30%. Terminal A was built relatively recently, which determines the efficiency of operational and investment costs.
At the same time, in terms of corporate governance, the Agency notes the multilevel group structure and relatively weak financial transparency. The Company resumed drawing up consolidated IFRS financial statements in 2022. However, the overall level of information disclosure remains lower than that of large public companies.
Very low leverage and high profitability amid small business size. According to the Agency’s expectations, the Company’s revenues will remain at around RUB 1–1.5 bln in 2023–2025. In this period, FFO before net interest payments and taxes will amount to RUB 800–900 mln annually, which corresponds to a low score for business size as per ACRA’s methodology. However, economically reasonable airfares and a strong pricing policy in terms of additional services allow the Company to maintain high profitability. ACRA expects the FFO before interest and taxes margin to remain within 65–70% in 2023–2025. The Agency notes the Company’s very low leverage: as of the end of August 2023, the only item in the debt portfolio (a loan from State Development Corporation “VEB.RF” (AAA(RU), outlook Stable) was fully repaid using the Company’s internal funds. ACRA expects the ratio of total debt to FFO before net interest to remain well below 1.0x in 2023–2025.
Very high coverage and liquidity metrics support the Company’s financial risk profile. Very low leverage allows the Company to demonstrate very strong debt service indicators. The weighted average ratio of FFO before net interest payments to interest payments is 12.0x for 2020–2025. Moreover, the Company has substantial liquidity reserves: as of December 31, 2022, the amount of cash and equivalents on the balance sheet was RUB 1.6 bln, which was more than twice the volume of the debt portfolio on the specified date.
The Agency expects growth in the Company’s capital expenditures (capex) and a moderate volume of dividends. ACRA estimates that the Company’s capex will amount to about RUB 300 mln in 2023, followed by an increase to RUB 600 mln in 2024. The investment program includes modernization of the existing parking lot, construction of a new parking lot, and design and estimate documentation for the reconstruction of Paved Runway 2 and other projects. The investment program is sufficiently flexible and fully financed by the Company on its own. The weighted average ratio of capex to revenues is about 20%, which the Agency considers to be a weak indicator. In its base case scenario, ACRA assumes no dividends will be paid for the 2022 fiscal year. Expansion of the investment program may significantly reduce the Company’s free cash flow (FCF).
KEY ASSUMPTIONS
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Total passenger traffic to increase by 10% this year, and a moderate recovery by 3% annually after 2023;
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The FFO before interest and taxes margin to remain at 65–70% in 2023–2025;
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No dividend payouts for 2022.
POTENTIAL OUTLOOK OR RATING CHANGE FACTORS
The Stable outlook assumes that the rating will highly likely stay unchanged with the 12–18-month horizon.
A positive rating action may be prompted by:
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A material qualitative improvement in business profile, market position, and corporate governance practices;
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All other things being equal – a significant improvement in cash flow indicators, at which FCF profitability consistently exceeds 10%, and the ratio of capex to revenues is consistently less than 20%.
A negative rating action may be prompted by:
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A significant increase in leverage (total debt to FFO before net interest exceeding 1.0x), and the ratio of FFO before net interest to interest declining to 5.0x;
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Short-term liquidity indicator declining below 1.0x.
RATING COMPONENTS
Standalone creditworthiness assessment (SCA): a+.
Support: none.
REGULATORY DISCLOSURE
The credit rating has been assigned to Joint Stock Company “Terminal Vladivostok” 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 Joint Stock Company “Terminal Vladivostok” was published by ACRA for the first time on November 2, 2022. 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 Joint Stock Company “Terminal Vladivostok”, information from publicly available sources, and ACRA’s own databases. The credit rating is solicited and Joint Stock Company “Terminal Vladivostok” 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 Joint Stock Company “Terminal Vladivostok”. No conflicts of interest were discovered in the course of credit rating assignment.
