The credit rating of Joint Stock Company “Federal Passenger Company” (hereinafter, FPC or the Company) is AA+(RU) (on par with the Russian Federation minus one notch) based on the very high assessment of support from the state and the medium assessment of the degree of dependence of the state and the Company on homogeneous risk factors. At the same time, support is taken into account both from the state and the sole shareholder, Joint Stock Company “Russian Railways” (hereinafter, JSCo “RZD”; AAA(RU), outlook Stable).
FPC covers about 87% of long-distance passenger train routes in Russia. The Company serviced 95.9 mln passengers in 2022, which is 18.1% higher than in 2021. The increase in passenger traffic was mainly due to the fact that airports in the south of Russia remained closed. The Company’s revenues were RUB 256 bln in 2022, which is 34.8% higher than a year earlier. As of the end of 2022, the adjusted total debt of FPC amounted to RUB 79.7 bln, and the ratio of adjusted total debt to FFO before fixed payments was 1.8x. The growth trend in passenger traffic continued in 2023. Over 10 months of this year, passengers travelling in long-distance trains operated by the Company increased by 12% (83 mln people). FPC is wholly owned by JSCo “RZD”, which in turn is owned by the Russian Federation.
KEY ASSESSMENT FACTORS
ACRA expects positive dynamics in financial performance for 2023. In the Agency’s opinion, FPC’s passenger traffic will increase by 9% by the end of this year compared to the previous year. The main reasons for this are the closure of airports in southern Russia in 2022 and the subsequent migration of passengers from air transport to railways, as well as the gradual recovery of business activity this year. Adjusted FFO before fixed payments and taxes is expected to be around RUB 45–50 bln in 2023.
FPC’s standalone creditworthiness assessment (SCA) is a- is based on its very strong geographic diversification and strong market position stemming from its monopoly position in the long-distance rail transport segment throughout Russia. The business profile is assessed as medium in view of FPC’s focus on passenger transportation (the most stable transportation segment), medium use of capacity in trains (no more than 75%), and the low assessment of the current condition of its rolling stock (the average age of rolling stock is 17 years, which indicates the need to renew it). ACRA assesses the level of FPC’s corporate governance as high.
The financial risk profile assessment supports the SCA and is based on the large size of the Company’s business (the absolute FFO before net interest payments and tax is expected at around RUB 50–60 bln), medium leverage (the ratio of adjusted total debt to FFO before fixed payments weighted for 2021–2026 was 2.0x), and negative FCF (the FCF margin weighted for 2021–2026 was -8.4%). At the same time, the Company’s profitability, taking into account subsidies it receives to compensate for transportation costs, is high — the ratio of FFO before fixed payments and taxes to revenues weighted for 2021–2026 amounted to 17.1%.
FPC’s liquidity is high due to funds available in accounts and undrawn credit lines provided by banks.
The very high assessment of support from the state and medium assessment of the degree of dependence on homogeneous risk factors take into account the absence of legal, economic or other obstacles preventing JSCo “RZD” or the state directly providing support to the Company, and reflect the fact that FPC is the priority performer of socially significant functions to ensure passenger transportation on long-distance trains. The Company’s importance to the national economy is significant in terms of its social and economic effect. In addition to complete shareholder control via JSCo “RZD”, the state exercises considerable strategic control over the Company and participates in the coordination of its financial and strategic development plans via representatives. The state has supported and continues to support the Company in the form of subsidies to compensate for losses in income associated with state regulation of tariffs, and via shareholder JSCo “RZD” in the form of capital injections to help the Company successfully carry out its development strategy.
KEY ASSUMPTIONS
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Maintained state support in the form of direct subsidies and preferential tax treatment (zero VAT);
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Indexation of rates for the Company’s services at the level of 2022 in 2023 and then averaging 4.0% in 2024–2026;
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Increase in passenger traffic in line with the Company’s business plan in 2024–2026;
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Investment program in line with the Company’s business plan in 2024–2026;
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No dividend payments or dividend clawback as contributions to authorized capital.
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:
- Increase in the Company’s systemic importance to the state and significant expansion of its functionality.
A negative rating action may be prompted by:
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Considerable decrease in the level of systemic importance to the Russian economy;
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Loss of state control or considerable decrease in state support.
RATING COMPONENTS
SCA: a-.
Support: state — on par with the RF minus one notch.
ISSUE RATINGS
Exchange-traded interest-bearing non-convertible certificated bearer bond issued by Joint Stock Company “Federal Passenger Company” (ISIN RU000A0ZYX69), maturity date: February 23, 2028, issue volume: RUB 10 bln — AA+(RU).
Exchange-traded interest-bearing non-convertible certificated bearer bond issued by Joint Stock Company “Federal Passenger Company” (ISIN RU000A0ZZTL5), maturity date: November 2, 2028, issue volume: RUB 10 bln — AA+(RU).
Exchange-traded interest-bearing certificated bearer bond issued by Joint Stock Company “Federal Passenger Company” (ISIN RU000A1012B3), maturity date: November 5, 2029, issue volume: RUB 5.5 bln — AA+(RU).
Credit rating rationale. The above issues are senior unsecured debt instruments of FPC. Due to the absence of either structural or contractual subordination of the issues, ACRA regards them as equal to other existing and future unsecured and unsubordinated debt obligations of the Company in terms of priority. According to ACRA’s methodology, taking into account the high level of creditworthiness of the issuer, as well as the absence of secured debt, the Agency applied the simplified approach, according to which the bond issues are rated AA+(RU), on par with the credit rating of FPC.
REGULATORY DISCLOSURE
The credit ratings have been assigned to Joint Stock Company “Federal Passenger Company” and its bond issues (ISIN RU000A0ZYX69, RU000A0ZZTL5, RU000A1012B3) 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 under the National Scale for the Russian Federation was also applied to assign the credit ratings to the above issues.
The credit ratings of Joint Stock Company “Federal Passenger Company” and its bond issues (ISIN RU000A0ZYX69, RU000A0ZZTL5, RU000A1012B3) were published by ACRA for the first time on December 7, 2017, March 7, 2018, November 15, 2018, and November 15, 2019, respectively. The credit rating of Joint Stock Company “Federal Passenger Company” and its outlook, and the credit ratings of its bond issues (ISIN RU000A0ZYX69, RU000A0ZZTL5, RU000A1012B3) 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 Joint Stock Company “Federal Passenger Company”, information from publicly available sources, and ACRA’s own databases. The credit ratings are solicited and Joint Stock Company “Federal Passenger 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 no additional services to Joint Stock Company “Federal Passenger Company”. No conflicts of interest were discovered in the course of credit rating assignment.
