The credit rating of Rostec State Corporation (hereinafter, the Corporation) has been affirmed on par with the Russian Federation due to the very strong assessment of state support to the Corporation and the very high dependence of the state and the Corporation on homogeneous risk factors.
As the Corporation’s assets are used primarily for the purposes of the Russian government, ACRA assumes that the determination of a standalone creditworthiness assessment (SCA) is impractical, and has only applied the Methodology for Analyzing Rated Entities Associated with a State or a Group.
The Corporation consolidates more than 800 companies from civil and defense industries, including high-tech manufacturers in industries such as aviation, conventional weapons, ammunition and special chemistry, radio electronics, and other important sectors, including healthcare.
KEY ASSESSMENT FACTORS
The very high level of support from the state is determined taking into account the very high assessments of the following sub-factors: Barriers and Restrictions, Exclusivity of Performed Functions, Ownership, Control and Regulation, and Guarantees and Other Channels of Support, as well as the high assessments of such sub-factors as Role in the Economy and Reputational Risks, and Social Role.
There are no legal, economic or other barriers for the state in supporting the Corporation. Moreover, the state provides extensive support to the entities included in the perimeter of the Corporation. The exclusivity of activities carried out by the Corporation is determined by its status as a state corporation. The Corporation was established by and operates in accordance with Federal Law No. 270-FZ dated November 23, 2007 “On the State Corporation for Assistance to Development, Production and Export of Advanced Technology Industrial Products ‘Rostec’” (hereinafter, the Federal Law on the Corporation). The Corporation’s entities are contractors under the state defense order, military and technical projects, and government programs. Both the Corporation’s entities and third-party contractors participate in the implementation of state defense orders.
The companies of the Corporation manufacture products under international contracts. Defaulting on these contacts could lead to financial losses and political and reputational risks. Many holding companies within the structure of the Corporation enjoy monopolistic positions in the Russian market and are the mainstays of many cities across Russia. Therefore, the Corporation is a significant contributor to the Russian economy and plays a major social role in the country. The average number of employees working at the Corporation’s companies is more than 660,000.
Shareholding and operational control by the state. The Corporation’s top management body is its Supervisory Board. All the representatives of the Corporation’s Supervisory Board and the CEO, who is a member of the Supervisory Board ex officio (Part 2, Article 11 of the Federal Law on the Corporation), are appointed by the President of the Russian Federation.
The Corporation’s companies receive state subsidies and special-purpose funds under the government program to implement national defense and civil aviation projects, promptly upgrade and re-equip production facilities, and develop the national manufacturing sector, etc. In addition, the state supports the Corporation and its companies through direct subsidizing of costs, subsidizing loan interest, and state guarantees. The state transfers, as contributions in kind, the most important assets to the Corporation for their strategic development and effective management.
The high dependence of the Corporation and the state on homogeneous risk factors is expressed in the high share of state transfers and state orders in the Corporation’s and its companies’ revenues, as well as in the high correlation of political risks.
KEY ASSUMPTIONS
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Maintaining full state control over the Corporation;
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Timeliness and sufficiency of state support measures for the Corporation and its companies to meet all of their financial obligations.
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 negative rating action may be prompted by:
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Loss of full control by the state;
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Lower systemic importance of the Corporation to the state.
RATING COMPONENTS
SCA: none.
Support: on par with the Russian Federation.
ISSUE RATINGS
No outstanding issues have been rated.
REGULATORY DISCLOSURE
The credit rating has been assigned under the national scale for the Russian Federation based on 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 credit rating of Rostec State Corporation was published by ACRA for the first time on August 30, 2018. The credit rating and its outlook are expected to be revised within one year following the publication date of this press release.
The credit rating was assigned based on data provided by Rostec State Corporation, information from publicly available sources, and ACRA’s own databases. The credit rating is solicited and Rostec State Corporation participated in its assignment.
In assigning the credit rating, 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 Rostec State Corporation. No conflicts of interest were discovered in the course of credit rating assignment.
