The outlook on the credit rating of SINARA TRANSPORTATION (hereinafter, the Company, or ST) has been changed to reflect a downward trend in the Company’s leverage in 2022–2023 and a further decline to 3.5x expected in 2024. The credit rating is based on the strong assessments of market position and business profile, as well as high profitability. On the other hand, the medium assessments of business size, geographic diversification, leverage, coverage, and FCF margin have a neutral impact on the rating.
ST is a machine-building holding specializing in the manufacture and maintenance of a wide range of railway equipment: electric trains, freight electric locomotives, diesel locomotives of various modifications, industrial diesel engines and diesel generators, track equipment, as well as units and components of railway equipment. The Company is part of the Sinara Group that holds machinery manufacturing assets, as well as companies specializing in development, financial and banking services, agribusiness, power industry, and the tourism and leisure industry.
KEY ASSESSMENT FACTORS
The strong business profile reflects the Company’s strong positions in the sub-factors ‘Characteristics of Sales Markets’ and ‘Dependence on Subcontracting and Components’, as well as the very strong score for the sub-factor ‘Stability of Revenues/Contract Base’ (more than revenues for three years). The ‘Market Position’ sub-factor is also assessed as high because the Company is a key, and for some types of products — the only, supplier of railway equipment on the Russian market. At the same time, the ‘Sales Market Diversification’ sub-factor received a medium score, given that the Company’s revenue is dominated by domestic sales (more than 90% of revenue). The corporate governance factor is assessed at a high level.
The medium assessment of the financial risk profile is based on the medium size of the Company’s business in the context of the corporate sector (the absolute value of FFO before interest and taxes is within RUB 5–30 bln), as well as medium assessments of leverage and coverage. The leverage indicator (the ratio of total debt to FFO before net interest) amounted to 7.2x in 2022 and, according to ACRA’s estimations, it declined to 5.2x by the end of 2023. The coverage indicator (the ratio of FFO before net interest to interest) was 1.69x in 2021 and 1.65x in 2022, and it is expected by ACRA at 1.63x for 2023. At the same time, the Company’s profitability is assessed as high — the weighted FFO before interest and taxes margin for 2021–2026 is 11.5%.
The liquidity assessment is high due to the strong cash position and a substantial amount of committed but undrawn credit lines. These means are ample to cover repayments falling due in 2024.
The high assessment of cash flow reflect, on the one hand, the medium FCF (less than 5% of revenues), and on the other hand, the very high assessment of the ratio of capital expenses to revenue (less than 5%).
KEY ASSUMPTIONS
-
Achieving the revenue and FFO targets for 2024–2026.
-
Total volume of capital investments in 2024–2026 in line with the approved business plan.
-
Average FFO before interest and taxes margin at no lower than 13% in the forecast period.
-
Reasonable dividend policy.
POTENTIAL OUTLOOK OR RATING CHANGE FACTORS
The Stable outlook assumes that the rating will highly likely remain unchanged within the 12 to 18-month horizon.
A positive rating action may be prompted by:
- The weighted average ratio of total debt to FFO before net interest declining below 3.5x.
A negative rating action may be prompted by:
- The weighted average ratio of total debt to FFO before net interest remaining above 3.5x and the ratio of FFO before net interest to interest remaining below 2.5x.
RATING COMPONENTS
Standalone creditworthiness assessment (SCA): a.
Adjustments: none.
Support: no.
ISSUE RATINGS
Bond, series 001P-01 (RU000A1035D0), maturity date: May 24, 2024, issue volume: RUB 10 bln — A(RU).
Bond, series 001P-02 (RU000A103G00), maturity date: July 22, 2026, issue volume: RUB 10 bln — A(RU).
Bond, series 001P-03 (RU000A105M91), maturity date: December 10, 2027, issue volume: RUB 10 bln — A(RU).
Credit rating rationale. The issues represent senior unsecured debt instruments of the Company. Due to the absence of either structural or contractual subordination of the issues, ACRA regards them as pari passu to other existing and future unsecured and unsubordinated debt obligations of the Company. In accordance with ACRA’s methodology, to determine the rating of the issues, the detailed approach was applied to assess the recovery rate (2nd recovery category) for the unsecured debt of the Company. Taking into account the recovery rate, the rating of the issues is equal to the credit rating of the Company and is set at A(RU).
REGULATORY DISCLOSURE
The credit ratings have been assigned to SINARA TRANSPORTATION and the bond issues (RU000A1035D0, RU000A103G00, RU000A105M91) of SINARA TRANSPORTATION 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 under the National Scale for the Russian Federation was also applied to assign the credit rating to the above bond issues.
The credit ratings of SINARA TRANSPORTATION and the bond issues of SINARA TRANSPORTATION were published by ACRA for the first time on March 17, 2021, and March 15, 2023, respectively. The credit rating of SINARA TRANSPORTATION and its outlook, as well as the credit rating of the bond issues (RU000A1035D0, RU000A103G00, RU000A105M91) of SINARA TRANSPORTATION 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 SINARA TRANSPORTATION, its IFRS consolidated financial statements, information from publicly available sources, and ACRA’s own databases. The credit ratings are solicited, and SINARA TRANSPORTATION 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 additional services to SINARA TRANSPORTATION. No conflicts of interest were discovered in the course of credit rating assignment.
