The credit rating of KAMAZ PTC (KAMAZ, or the Company) has been upgraded in view of improved assessments of the Company’s size and leverage on the backdrop of sustainably high FFO before net interest.
The credit rating reflects the high score for government support, the Company’s strong market position, high level of corporate governance, as well as medium assessments of business profile and geographic diversification. The financial risk profile is based on the very strong liquidity, large size, low coverage, and medium business profitability, debt coverage and cash flow.
KAMAZ is Russia’s largest automobile corporation that is among top 20 world manufacturers of heavy-duty trucks and the leader in the Russian truck market. The Company offers a wide range of products including trucks, buses, electric buses, trailers and semitrailers, engines, etc.
KEY ASSESSMENT FACTORS
The level of state support is assessed as high. The Company is the key player in the Russian truck market, having strategic importance for the state in terms of ensuring transportation security. In addition, the motor vehicle industry demonstrates one of the highest multiplier effects: one job in this sector creates ten or more jobs in related industries. KAMAZ is a backbone enterprise in its location. The Company is a consistent recipient of very strong direct support from the government, including subsidized loans, property tax benefits, co-financing of research and development, state guarantees for loans and bond issues, subsidized interest rates on investment loans, subsidies for partial reimbursement of export transportation costs, subsidized financing of export contracts, etc.
Strong market position. In 2023, the volume of the Russian market of trucks with the gross weight of 14+ tons grew to 135,000 vehicles. The Company’s sales in physical terms increased by 4.9% last year. Along with the classical models, KAMAZ increased the production volume of its K5 model. It also actively promotes the Compass line of commercial vehicles. KAMAZ vehicles are exported to CIS and non-CIS countries. The Company has plans to develop its exports further and to strengthen its positions on the target markets.
Large size of the Company. The weighted average FFO before net interest and taxes for 2021–2026 is above RUB 30 bln, which, according to ACRA’s methodology, is an indication of the large business size.
Low leverage. The leverage assessment has been upgraded in view of sustainably high FFO before net interest and a gradual reduction of the Company’s total debt in the forecast period. The weighted average ratio of total debt to FFO before net interest for 2021–2026 is expected, according to ACRA’s estimates, to amount to 3.0x. As the share of debt raised by the Company to finance lease payments is substantial, ACRA includes lease revenues in FFO when calculating the Company’s leverage and coverage metrics. The Company’s portfolio of loans is well-diversified by lenders and instruments (including corporate bonds, credit lines from commercial banks, loans from government and development institutions) and well-balanced by durations (73% of the debt is long-term). Interest payments on a substantial portion of the Company’s liabilities are subsidized by the Russian government, while a number of loans have subsidized interest rates, which mitigates the effects of key rate hikes on the leverage. The ratio of FFO before net interest to interest (excluding subsidies) amounted to 5.1x in 2023, while the weighted average ratio calculated for 2021–2026 grew to 4.1x against 3.6x a year ago.
The very strong liquidity is maintained by a substantial volume of cash held in the Company’s accounts and a significant amount of committed but undrawn credit facilities. KAMAZ has a comfortable debt repayment schedule in the long term, as well as diversified sources of internal and external funding, including bond issues in the stock market.
Medium cash flow. The FCF margin amounted to 7.1% by the end of 2023 (compared to 8.9% a year earlier), and the weighted average FCF margin for 2021–2026 was 2.1%. In the forecast period of 2024–2026, the Company is expected to implement a large-scale investment program with the investment peak falling on 2026. At the same time, the Agency takes into account significant cash balances on the Company’s accounts and term deposits, which largely cover the planned investments. On the other hand, a change in the scenario towards an increase in investment costs, including after 2026, may impair the FCF margin and, consequently, the credit rating.
KEY ASSUMPTIONS
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Retaining the high level of continuous government support.
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Annual domestic sales of KAMAZ trucks with the gross weight of 8+ tons at least 40,000 units in 2024–2026.
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Implementation of the Company’s investment program as planned.
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:
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The weighted-average FFO before interest and tax margin exceeding 10% and the weighted average ratio of total debt to FFO before net interest declining below 2.0x and the weighted average ratio of FFO before net interest to interest exceeding 5.0x;
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The weighted-average FFO before interest and tax margin exceeding 10% and the weighted average FCF margin exceeding 10%.
A negative rating action may be prompted by:
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The weighted average ratio of FFO before net interest to interest declining below 2.5x;
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The weighted-average ratio of total debt to FFO before net interest exceeding 3.5x;
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The weighted average FCF margin declining below 2% and the Company’s liquidity deteriorating.
RATING COMPONENTS
Standalone Creditworthiness Assessment (SCA): a.
Support: state support, SCA + three notches.
ISSUE RATINGS
Exchange-traded interest-bearing certified bearer bonds of KAMAZ PTC, BO-07 series, maturity date: May 05, 2033, issue volume: RUB 3 bln — АА+(RU).
Exchange-traded interest-bearing certified bearer bonds of KAMAZ PTC, BO-08 series, maturity date: May 05, 2033, issue volume: RUB 3 bln — АА+(RU).
Exchange-traded interest-bearing certified bearer bonds of KAMAZ PTC, BO-09 series, maturity date: May 10, 2033, issue volume: RUB 3 bln — АА+(RU).
Exchange-traded interest-bearing certified bearer bonds of KAMAZ PTC, BO-10 series, maturity date: May 10, 2033, issue volume: RUB 3 bln — АА+(RU).
Exchange-traded interest-bearing certified bearer bonds of KAMAZ PTC, BO-11 series, maturity date: May 10, 2033, issue volume: RUB 3 bln — АА+(RU).
Uncertified non-convertible exchange-traded interest-bearing bonds of KAMAZ PTC subject to centralized title registration, BO-P10 series, maturity date: July 18, 2025, issue volume: RUB 7 bln — АА(RU).
Uncertified non-convertible exchange-traded interest-bearing bonds of KAMAZ PTC, BO-P11 series, maturity date: January 21, 2026, issue volume: RUB 10 bln — АА(RU).
Credit rating rationale. The issues are senior unsecured debt instruments of KAMAZ. In view of the absence of either structural or contractual subordination of the issues, ACRA assesses these bonds pari passu with other existing and future unsecured and unsubordinated obligations of the Company. In accordance with ACRA’s methodology, the Agency applied the simplified approach, according to which the credit rating of the series BO-P10 and BO-P11 bond issues is on par with that of the Company — AA(RU).
The principal amounts of the series BO-07, BO-08, BO-09, BO-10 and BO-11 bonds are secured by state guarantees, therefore ACRA applied a one-notch upward adjustment to the issue credit ratings against the Company’s credit rating and assigned AА+(RU) to the abovementioned bond issues.
Regulatory disclosure
The credit rating of KAMAZ PTC and the credit ratings of the bond issues of KAMAZ PTC 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, the 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 of the Russian Federation was also applied to assign credit ratings to the above bond issues.
The credit rating of KAMAZ PTC was published by ACRA for the first time on April 23, 2018; the credit ratings of the series BO-07, BO-08, BO-09, BO-10 and BO-11 bonds of KAMAZ PTC were published by ACRA for the first time on May 14, 2018. The credit ratings of the series BO-P10 and BO-P11 bonds of KAMAZ PTC were published by ACRA for the first time on July 22, 2022 and January 24, 2024, respectively. The credit rating of KAMAZ PTC and its outlook and the credit ratings of the above bond issues of KAMAZ PTC are expected to be revised within one year following the publication date of this press release.
The credit ratings are based on the data provided by KAMAZ PTC, information from publicly available sources, and ACRA’s own databases. The credit ratings are solicited, and KAMAZ PTC 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 KAMAZ PTC. No conflicts of interest were identified in the course of credit rating assignment.