ACRA ASSIGNS AA(RU) TO GLOBAL PORTS INVESTMENTS IJSC, OUTLOOK STABLE, AND AA(RU) TO BOND ISSUES OF VSC LLC AND FCT JSC

The credit rating of GLOBAL PORTS INVESTMENTS IJSC (hereinafter, GPI, the Company) is based on the strong market position and the very strong business profile, which, in turn, is determined by extremely low regulatory risks, very high diversification of services, and the high quality of fixed assets. The operational risk profile assessment reflects the very high geographic diversification and strong corporate governance. The Company’s credit quality is supported by the high business profitability, low leverage, and very strong liquidity. However, these indicators are constrained by the Company’s medium size and debt coverage, as well as weak cash flow indicators.

Global Ports is the largest and the only holding company in Russia that controls stevedoring assets used for transshipment of container and other types of cargo in two maritime areas — the Baltic and the Far East. The Company’s assets include seven multi-profile terminals with a total capacity of 3.4 million TEU¹ and 30 wharfs with a total length of 6 km.

¹ Twenty-foot equivalent unit.

Key assessment factors

Regardless the crisis in the Russian container market, the Company maintains a stable financial position. The container transshipment traffic through Russian ports peaked in 2021, when it amounted to 5.4 million TEU. In 2022, the traffic decreased by 24.2% to 4.1 million TEU. Last year, it recovered to 4.7 million TEU, but this is still lower than in the pre-crisis period. GPI’s operating results show similar dynamics: after a peak of 1.5 million TEU in 2021, the transshipment volume amounted to 0.9 million TEU in 2023. However, despite impaired operating performance, the Company managed to overcome the crisis period of 2022–2023 thanks to a strong pricing policy and costs control and to improve its financial results in 2022 and 2023.

Very strong business profile. The Agency notes extremely low regulatory risks, since GPI’s container transshipment rates are not regulated by the government thus ensuring the flexibility of the Company’s pricing policy. Transshipment rates fully cover all operating and investment expenses of GPI and allow it to maintain FFO before net interest and taxes margin at 40–45%. ACRA also notes the very high diversification of the Company’s transportation services. GPI provides a full range of services related to transshipment of containers, bulk, ro-ro and other cargoes. Depreciation of the Company’s fixed assets is assessed as moderate and amounts to about 35–40%.

The high assessment of the market position and corporate governance and the very high assessment of geographic diversification. GPI is the country’s largest operator of marine container terminals. By the end of 2023, the Company’s market share in terms of cargo transshipment at marine terminals amounted to 19%. The average market share in the Baltic maritime area was about 30% last year, but in H2 2023 it began to grow and currently it is about 40%. ACRA expects the Company to maintain its market position in the Northwestern region of the country in the forecast period. In the Far Eastern maritime area, the share of GPI is approximately 30%. The closest competitors are St. Petersburg Container Terminal (SPCT) in the Baltic area and the Vladivostok Commercial Sea Port in the Far Eastern area. Both have market shares comparable to that of GPI in their respective areas. The main advantage of the Company is the diversification of the maritime areas of its presence. Historically, the Baltic accounted for a half of the containers transshipped through Russian ports. However, in 2022, trade volumes with European countries fell and container flows migrated from the Northwest to the South and the Far East of Russia. Thanks to its own marine terminal in the Far East, the Company has partially offset the decrease in transshipment volume in the Baltic.

The Agency notes the Company’s strong corporate governance, which is based on the very strong management strategy and very high risk-management efficiency. The corporate governance is considered stronger than the Russian corporate market average.

High profitability and medium size. According to ACRA’s estimates, in 2023, the Company’s FFO before net interest and taxes amounted to RUB 20–25 bln, and given the Company’s development plans, the Agency expects this indicator to grow to RUB 25–30 bln in the coming years. At the same time, the size of GPI’s business is assessed as medium, since this indicator is likely to remain below RUB 30 bln over the next two to three years. The weighted average FFO before net interest and taxes margin for 2021–2026 is 43.5%, which corresponds to a high score for profitability.

Low leverage and medium interest coverage. At the end of 2023, the ratio of total debt to FFO before net interest was 2.5x. ACRA expects that in the next two to three years this ratio will decrease and, all other things being equal, will be about 1.0x by the end of 2026. GPI generates sufficient free cash flow (FCF) to service its debt on its own. According to ACRA’s estimates, the weighted average coverage for 2021–2026 is 4.6x.

Very strong liquidity and weak cash flow indicators. At the end of 2023, the Company had a sufficient liquidity buffer that included cash and certain loans granted to the shareholder through the existing unified treasury system and available for utilization. Given the smooth debt repayment schedule, these liquidity reserves, coupled with a moderately positive FCF, are sufficient to service all current debt obligations of the Company. At the same time, GPI plans to expand its investment program in 2024–2025 focused on the assets in the Far East, which puts pressure on cash flow indicators. According to ACRA’s estimates, the weighted average FCF margin for 2021–2026 is 1%, and the weighted average ratio of capex to revenue for the same period is 24.5%.

key assumptions

• Recovery growth of container transshipment flow in 2024 by 25–30% compared to 2023, followed by a steady annual transshipment growth of 5–7%.

• Maintaining the FFO before net interest and taxes margin at 40–45% in 2024–2026.

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:

• Leverage (weighted average ratio of total debt to FFO before net interest) sustainably below 1.0x and weighted average coverage steadily exceeding 5.0x.

A negative rating action may be prompted by:

• Leverage (weighted average ratio of total debt to FFO before net interest) much higher than 4.0x;

• Coverage (ratio of FFO before net interest to interest) declining below 2.5x;

• Short-term liquidity ratio declining below 0.8x.

Rating components

Standalone creditworthiness assessment (SCA): aa.

Support: none.

Issue ratings

Credit rating rationale. The issues listed below are senior unsecured debt instruments of Vostochnaya Stevedoring Company LLC and First Container Terminal JSC, subsidiaries of GPI. The credit rating is based on public irrevocable offers from the Company. Given the absence of structural and contractual subordination of issues, ACRA ranks these bonds pari passu with any 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 the issue rating. According to ACRA’s calculations, the recovery rate for unsecured debt belongs to category I, so that the issue credit rating is AA(RU), i.e. equal to the credit rating of GLOBAL PORTS INVESTMENTS IJSC.

Key Issue properties

1) ISIN RU000A102G50

2) ISIN RU000A104362

3) ISIN RU000A105KR6

4) ISIN RU000A106P06

5) ISIN RU000A0JW0S4

6) ISIN RU000A0JW5E3

7) ISIN RU000A0JWBP5

Source: ACRA, issuer’s data

regulatory disclosure

The credit ratings of GLOBAL PORTS INVESTMENTS IJSC and bond issues (ISIN RU000A102G50, RU000A104362, RU000A105KR6, RU000A106P06, RU000A0JW0S4, RU000A0JW5E3, RU000A0JWBP5) of Vostochnaya Stevedoring Company LLC and First Container Terminal JSC have been assigned 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 Methodology for Assigning Credit Ratings to Financial Instruments on the National Scale for the Russian Federation was also applied to assign the credit rating to the abovementioned issues.

The credit ratings have been assigned to GLOBAL PORTS INVESTMENTS IJSC and bond issues (ISIN RU000A102G50, RU000A104362, RU000A105KR6, RU000A106P06, RU000A0JW0S4, RU000A0JW5E3, RU000A0JWBP5) of Vostochnaya Stevedoring Company LLC and First Container Terminal JSC for the first time. The credit rating of GLOBAL PORTS INVESTMENTS IJSC and its outlook and the credit rating of bond issues of Vostochnaya Stevedoring Company LLC and First Container Terminal JSC 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 GLOBAL PORTS INVESTMENTS IJSC, information from publicly available sources, and ACRA’s own databases. The credit ratings are solicited and GLOBAL PORTS INVESTMENTS IJSC 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 ancillary services to GLOBAL PORTS INVESTMENTS IJSC, Vostochnaya Stevedoring Company LLC, and First Container Terminal JSC. No conflicts of interest were discovered in the course of credit rating assignment.