The credit rating assigned to Joint Stock Company “Russian Railways” (hereinafter, the Company) is on par with the financial obligations of the Russian Government, in view of very high systemic importance of the Company for the Russian economy and very high state influence on the Company.

The standalone creditworthiness assessment (SCA) of the Company (а+) hinges on the strong industry risk profile of the Company, supported by its monopolistic positions, very large scale and high profitability of business, moderate leverage, and very high liquidity. The SCA is restricted by the negative free cash flow caused by substantial capital investments.

The Company is a natural monopoly, one of the largest global railway companies, which owns and operates railway infrastructure and locomotives in Russia. The Company’s consolidated IFRS revenue amounted to about RUB 2,175 bln in 12 months ended June 30, 2017. The sole shareholder of the Company is the Russian Federation.

Key rating assessment factors

Very high systemic importance of the Company for the Russian economy and very high state influence on the Company’s creditworthiness. The systemic importance is very high because the Company is a natural monopoly, the largest employer and an inseparable part of the national economy. The state influence is very high, as the state exercises operating and shareholding control over the Company, subsidizes the Company and finances its investment program through the National Welfare Fund and tax benefits. In 2016, the volume of state funding, including subsidies and contributions to charter capital, amounted to RUB 116.7 bln, and ACRA expects that, in 2017, it will be not less than RUB 150 bln.

Strong industry risk profile stems from the Company’s vertically integrated structure, as the Company is the owner and operator of railway infrastructure and rolling stock. In 2016, the share of rail transport amounted to 87% of cargo turnover (without pipelines) and 24% of passenger turnover in the Russian Federation.

Strong business profile is supported by the high stability of the transportation segment, monopolistic positions of the Company, and high intensity of rolling stock utilization. On the other hand, the Agency notes that the limiting factors include a moderate regulatory risk and a substantial volume of the investment program, including purchase of new rolling stock.

High level of corporate governance. The Company’s board of directors consists of 13 members, including three independent directors. The risk management function is well-regulated, and risk identification and management procedures are in place. ACRA notes that the share of foreign currency-denominated and floating rate liabilities (about 35% and 30%, respectfully) is substantial, but the Company applies hedging instruments to manage risks, including natural hedge. The Company maintains an adequate financial transparency.

Moderate leverage. As of end-2016, the total debt to FFO before net interest ratio was 2.5х, and the ratio of the debt adjusted for operating lease to FFO before fixed charges was 2.6х. As the Company needs substantial funds for its capital investment program (about RUB 625 bln in 2018, on a consolidated basis), ACRA expects that the leverage will grow and the above ratios will reach 3.0х–3.1х on the horizon of 2017–2019. The coverage (the FFO before interest to interest ratio) was 4.5х in late 2016. About a third of the portfolio of loans is floating rate, which, in ACRA’s opinion, may result in certain savings on interest expenses on the forecast horizon of 2017–2019 (as the weighted ratio for 2014–2019 is 4.8х).

Negative FCF amid strong liquidity. ACRA assesses the Company’s liquidity as very strong: the amount due in the next 12 months is not more than RUB 100 bln, while the amount of available credit lines exceeds RUB 400 bln. In 2014–2016, the Company generated negative FCF because of the large-scale investment program; capital expenditures exceeded RUB 1,318 bln in that period. ACRA expects that the FCF shortage will amount to 5–7% of the revenues in 2017–2018. The weighted capex-to-revenue ratio is 24.1% for 2014–2019.

Key assumptions

  • The total amount of annual state support, including subsidies and contributions to the charter capital, at not less than RUB 150 bln;
  • Successful implementation of the capital investment program;
  • Annual dividend at not more than RUB 7 bln.

Potential outlook or rating change factors

The Stable outlook assumes that the rating will most likely stay unchanged within the 12 to 18-month horizon.

A negative rating action may be prompted by:

  • A significant decline in the systemic importance of the Company for the Russian economy;
  • A loss of shareholding control on the part of the state or a substantial decrease of volume of financial support.

Rating components

Standalone creditworthiness assessment (SCA): а+

Support: on par with the RF.

Issue ratings

Credit rating rationale. Bond issues listed below are senior unsecured debt obligations of the Company. Due to the absence of either structural or contractual subordination of the bonds, ACRA ranks the bonds pari passu with other existing and future unsecured and unsubordinated debt obligations of the Company.

In accordance with the ACRA methodology, and taking into account high creditworthiness and the moderate leverage of the issuer, as well as the absence of secured debt obligations, ACRA applies a simplified approach, according which the bond issues are rated AAA(RU), on par with the credit rating assigned to the Company.

Key issue properties

Issuer/Actual issuer of all bonds specified below: JSCo “RZD”
(Issuer credit rating: AAA(RU), outlook Stable)

1) ISIN RU000A0JQ5Q5

Type of security

Certified interest-bearing non-convertible unregistered bond subject to mandatory deposit,
12 series

Issue volume

RUB 15 bln

Final placement date/Maturity date

May 28, 2009/ May 16, 2019

 

2) ISIN RU000A0JQ7W9

Type of security

Certified interest-bearing non-convertible unregistered bond subject to mandatory deposit,
17 series

Issue volume

RUB 15 bln

Final placement date/Maturity date

July 27, 2009/July 16, 2018

 

3) ISIN RU000A0JQ7Z2

Type of security

Certified interest-bearing non-convertible unregistered bond subject to mandatory deposit,
19 series

Issue volume

RUB 10 bln

Final placement date/Maturity date

July 27, 2009/July 08, 2024

 

4) ISIN RU000A0JQ7X7

Type of security

Certified interest-bearing non-convertible unregistered bond subject to mandatory deposit,
18 series

Issue volume

RUB 15 bln

Final placement date/Maturity date

July 27, 2009/July 15, 2019

 

5) ISIN RU000A0JQRD9

Type of security

Certified interest-bearing non-convertible unregistered bond subject to mandatory deposit,
23 series

Issue volume

RUB 15 bln

Final placement date/Maturity date

February 04, 2010/January 16, 2025

 

6) ISIN RU000A0JSGV0

Type of security

Certified interest-bearing non-convertible unregistered bond subject to mandatory deposit,
32 series

Issue volume

RUB 10 bln

Final placement date/Maturity date

July 20, 2012/June 25, 2032

 

7) ISIN RU000A0JTU85

Type of security

Certified interest-bearing non-convertible unregistered bond subject to mandatory deposit,
28 series

Issue volume

RUB 20 bln

Final placement date/Maturity date

April 09, 2013/March 21, 2028

 

8) ISIN RU000A0JTY57

Type of security

Certified exchange-traded interest-bearing non-convertible unregistered bond subject to mandatory deposit,
BO-18 series

Issue volume

RUB 25 bln

Final placement date/Maturity date

June 05, 2013/April 29, 2043

 

9) ISIN RU000A0JTZM7

Type of security

Certified exchange-traded interest-bearing non-convertible unregistered bond subject to mandatory deposit,
BO-09 series

Issue volume

RUB 25 bln

Final placement date/Maturity date

June 27, 2013/June 08, 2028

 

10) ISIN RU000A0JU542

Type of security

Certified exchange-traded interest-bearing non-convertible unregistered bond subject to mandatory deposit,
BO-12 series

Issue volume

RUB 25 bln

Final placement date/Maturity date

September 12, 2013/August 18, 2033

 

11) ISIN RU000A0JU7B7

Type of security

Certified exchange-traded interest-bearing non-convertible unregistered bond subject to mandatory deposit,
BO-13 series

Issue volume

RUB 25 bln

Final placement date/Maturity date

October 14, 2013/September 19, 2033

 

12) ISIN RU000A0JU9M0

Type of security

Certified exchange-traded interest-bearing non-convertible unregistered bond subject to mandatory deposit,
BO-15 series

Issue volume

RUB 25 bln

Final placement date/Maturity date

November 11, 2013/October 11, 2038

 

13) ISIN RU000A0JUAH8

Type of security

Certified interest-bearing non-convertible unregistered bond subject to mandatory deposit,
30 series

Issue volume

RUB 15 bln

Final placement date/Maturity date

November 26, 2013/November 07, 2028

 

14) ISIN RU000A0JUCG6

Type of security

Certified exchange-traded interest-bearing non-convertible unregistered bond subject to mandatory deposit,
серия BO-10

Issue volume

RUB 25 bln

Final placement date/Maturity date

December 18, 2013/November 29, 2028

 

15) ISIN RU000A0JUPZ8

Type of security

Certified exchange-traded interest-bearing non-convertible unregistered bond subject to mandatory deposit,
BO-19 series

Issue volume

RUB 25 bln

Final placement date/Maturity date

June 27, 2014/May 20, 2044

 

16) ISIN RU000A0JUX71

Type of security

Certified exchange-traded interest-bearing non-convertible unregistered bond subject to mandatory deposit,
BO-16 series

Issue volume

RUB 25 bln

Final placement date/Maturity date

October 21, 2014/September 20, 2039

 

17) ISIN RU000A0JVB19

Type of security

Certified interest-bearing non-convertible unregistered bond subject to mandatory deposit,
33 series

Issue volume

RUB 15 bln

Final placement date/Maturity date

March 31, 2015/February 28, 2040

 

18) ISIN RU000A0JVB27

Type of security

Certified interest-bearing non-convertible unregistered bond subject to mandatory deposit,
34 series

Issue volume

RUB 15 bln

Final placement date/Maturity date

March 31, 2015/February 28, 2040

 

19) ISIN RU000A0JV8Q2

Type of security

Certified exchange-traded interest-bearing non-convertible unregistered bond subject to mandatory deposit,
BO-03 series

Issue volume

RUB 15 bln

Final placement date/Maturity date

May 22, 2015/May 03, 2030

 

20) ISIN RU000A0JVJS4

Type of security

Certified exchange-traded interest-bearing non-convertible unregistered bond subject to mandatory deposit,
BO-14 series

Issue volume

RUB 17 bln

Final placement date/Maturity date

June 30, 2015/May 29, 2035

 

21) ISIN RU000A0JVKH5

Type of security

Certified interest-bearing non-convertible unregistered bond subject to mandatory deposit,
35 series

Issue volume

RUB 15 bln

Final placement date/Maturity date

July 01, 2015/May 30, 2040

 

22) ISIN RU000A0JVW71

Type of security

Certified exchange-traded interest-bearing non-convertible unregistered bond subject to mandatory deposit,
BO-02 series

Issue volume

RUB 15 bln

Final placement date/Maturity date

October 29, 2015/October 16, 2025

 

23) ISIN RU000A0JVY04

Type of security

Certified interest-bearing non-convertible unregistered bond subject to mandatory deposit,
36 series

Issue volume

RUB 15.2 bln

Final placement date/Maturity date

March 14, 2016/October 15, 2040

 

24) ISIN RU000A0JWC82

Type of security

Certified exchange-traded interest-bearing non-convertible unregistered bond subject to mandatory deposit,
BO-07 series

Issue volume

RUB 20 bln

Final placement date/Maturity date

April 06, 2016/March 25, 2026

 

25) ISIN RU000A0JWD57

Type of security

Certified exchange-traded interest-bearing non-convertible unregistered bond subject to mandatory deposit,
BO-05 series

Issue volume

RUB 10 bln

Final placement date/Maturity date

April 15, 2016/April 03, 2026

 

26) ISIN RU000A0JWHU2

Type of security

Certified exchange-traded interest-bearing non-convertible unregistered bond subject to mandatory deposit,
BO-17 series

Issue volume

RUB 15 bln

Final placement date/Maturity date

June 03, 2016/April 26, 2041

 

27) ISIN RU000A0JWLU4

\Type of security

Certified interest-bearing non-convertible unregistered bond subject to mandatory deposit,
42 series

Issue volume

RUB 15 bln

Final placement date/Maturity date

June 28, 2016/May 22, 2046

 

28) ISIN RU000A0JX1S1

\Type of security

Certified interest-bearing non-convertible unregistered bond subject to mandatory deposit,
41 series

Issue volume

RUB 15 bln

Final placement date/Maturity date

December 15, 2016/November 27, 2031

 

29) ISIN RU000A0JXJK7

Type of security

Certified exchange-traded interest-bearing non-convertible unregistered bond subject to mandatory deposit,
BO-11 series

Issue volume

RUB 15 bln

Final placement date/Maturity date

March 03, 2017/February 04, 2032

 

30) ISIN RU000A0JXN05

Type of security

Certified exchange-traded interest-bearing non-convertible unregistered bond subject to mandatory deposit,
001Р-01R series

Issue volume

RUB 15 bln

Final placement date/Maturity date

April 07, 2017/May 18, 2032

 

31) ISIN RU000A0JXQ44

Type of security

Certified exchange-traded interest-bearing non-convertible unregistered bond subject to mandatory deposit,
001P-02R series

Issue volume

RUB 15 bln

Final placement date/Maturity date

April 27, 2017/April 02, 2037

 

32) ISIN RU000A0JXR84

Type of security

Certified exchange-traded interest-bearing non-convertible unregistered bond subject to mandatory deposit,
001P-03R series

Issue volume

RUB 15 bln

Final placement date/Maturity date

May 18, 2017/April 23, 2037

 

33) ISIN RU000A0JXZB2

Type of security

Certified exchange-traded interest-bearing non-convertible unregistered bond subject to mandatory deposit,
001P-04R series

Issue volume

RUB 15 bln

Final placement date/Maturity date

August 17, 2017/July 29, 2032

Regulatory disclosure

The credit ratings were assigned to Joint Stock Company "Russian Railways" and bonds issued by Joint Stock Company "Russian Railways" 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, the Methodology for Analyzing Relationships Between Rated Entities and the State, 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 Individual Issues of Financial Instruments under the National Scale of the Russian Federation was also applied to assign credit ratings to the above issues.

The credit rating has been assigned to Joint Stock Company “Russian Railways” for the first time. The credit rating and credit rating outlook are expected to be revised within one year following the rating action date (November 15, 2017).

The credit rating has been assigned to bonds issued by Joint Stock Company “Russian Railways” for the first time. The credit rating is expected to be revised within one year following the rating action date (November 15, 2017).

The credit ratings were assigned based on the data provided by Joint Stock Company “Russian Railways,” information from publicly available sources, as well as ACRA’s own databases. The credit rating has been assigned on the basis of the consolidated IFRS financial statements of Joint Stock Company “Russian Railways”. The credit ratings are solicited, and Joint Stock Company "Russian Railways" participated in their assignment.

No material discrepancies between the provided data and the data officially disclosed by Joint Stock Company “Russian Railways” in its financial statements were discovered.

ACRA provided no additional services to Joint Stock Company “Russian Railways”. No conflicts of interest were discovered in the course of credit rating assignment.

Print version
Download PDF

Analysts

Igor Golubnichy
Expert, Corporate Ratings Group
+7 (495) 139 04 80, ext. 149
Oleg Morgunov
Associate Director, Corporate Ratings Group
+7 (495) 139 04 80, ext. 175
We protect the personal data of users and process cookies only to personalize services. You can prevent the processing of cookies in your browser settings. Please read the terms of use of cookies on this website by clicking on more information.