The upgrade of the credit rating of Joint Stock Company “Terminal Vladivostok” (hereinafter, Terminal Vladivostok or the Company) is conditioned by the improvement of the assessments of cash flow and leverage amid continuing growth of operating indicators, declining capital expenditures and complete repayment of the Company’s financial debt in 2023. The credit rating is based on the very high assessments of profitability and debt load. The rating is also supported by the strong business profile and strong liquidity position. At the same time, the Company’s credit rating is constrained by its small size, relatively weak information disclosure practices, and multilevel group structure.
Terminal Vladivostok is the owner of a new passenger terminal (Terminal A) built at Vladivostok Airport as part of the preparations for the APEC Summit held in September 2012. Terminal A has completely replaced the airport’s outdated passenger terminal servicing international and domestic flights.
KEY ASSESSMENT FACTORS
Growth of the Company’s operating results in 2024. In the first nine months of this year, the total traffic of Terminal Vladivostok amounted to 2.29 mln passengers, which is 16% higher than in the same period last year. Domestic traffic increased by 7% year-on-year and amounted to around 2 mln passengers, while international traffic increased by more than two times to 312,000 passengers. The significant growth of international traffic via Terminal Vladivostok explained by the active development of air links with countries in the Asia-Pacific region (primarily with China) against the backdrop of the closure of European routes for Russian airlines after February 2022. The Agency assumes that accelerated growth of international flights will continue in the medium term. ACRA expects the Company’s total traffic to reach 2.9 mln passengers in 2024 (+15% vs. 2023) and continue to grow at moderate rates in the future.
The Company is characterized by a high business profile assessment and a strong market position, which are offset by relatively weak financial transparency and a multilevel group structure. Terminal Vladivostok is the only international airport complex in the Primorsky Krai, thanks to which the Company is a regional monopoly. The nearest international airport (Khabarovsk) is 640 kilometers from Vladivostok, which determines the Company’s strong market position in its region of presence.
The Company’s revenues are well diversified and Terminal Vladivostok provides all the main types of airport and related services. ACRA expects the Company’s revenues to exceed RUB 1.9 bln by the end of 2024. Aviation services account for around 40% of revenues, while additional services account for around 60%. Seventeen airlines regularly operate flights via Terminal Vladivostok, the largest of which are companies of the Aeroflot Group (ACRA rating AA(RU), outlook Stable) with a total share of passenger traffic of around 45%, S7 Airlines (around 20%), and Aurora (20%). At the same time, more than 35% of passenger traffic is flights to and from Moscow. New international routes are currently actively developing, including regular flights to major Chinese cities (their share accounts for more than half of the terminal’s international passenger traffic). Beijing became the most popular international destination this year thanks to an expansion of cooperation with Chinese air companies.
In terms of corporate governance, the Agency notes the multilevel group structure and relatively weak financial transparency. The Company resumed drawing up consolidated IFRS financial statements in 2022. However, the overall level of information disclosure remains lower than that of large public companies.
Very high profitability and small business size. According to the Agency’s projections, the annual average FFO before net interest payments and taxes of Terminal Vladivostok will be RUB 1 bln in 2024–2026, which corresponds to a low score for business size as per ACRA’s methodology. However, economically reasonable airfares and a strong pricing policy in terms of additional services allow the Company to maintain very high profitability. ACRA expects the FFO before net interest payments and taxes to remain within 50–55% in 2024–2026.
Very low leverage and a high cash flow assessment. The Company has not had any debt obligations since August 2023. ACRA expects the ratio of total debt to FFO before net interest payments to remain well below 1.0x in 2024–2026 due the absence of the Company’s plans to borrow in the medium term in view of its significant supply of liquidity. Over the next three years, the Company does not plan to carry out any major projects to construct new airport infrastructure. The current capital expenditures plan includes reconstruction and upgrading of existing infrastructure, as well as renewing special equipment. At the same time, the investment program is sufficiently flexible and fully financed by Terminal Vladivostok. According to ACRA’s estimates, the volume of the Company’s capital expenditures by 2027 will amount to around RUB 400 mln annually. The weighted average ratio of capital expenditures to revenues is around 20%, which the Agency considers to be a weak indicator. A significant expansion of the investment program in the future may lead to a reduction in the Company’s free cash flow (FCF). ACRA’s base case scenario includes no dividend payments in 2024 and moderate dividends of RUB 300–400 mln in 2025–2026. The Company’s moderate capital expenditures and dividend payments determine the Agency’s expectations regarding its ability to generate positive FCF over the next three years.
The strong liquidity position supports the Company’s financial risk profile. Terminal Vladivostok has substantial liquidity reserves. As of June 30, 2024, the amount of cash and equivalents on the balance sheet was RUB 2.3 bln, which exceeded both the Company’s total obligations and its revenues for the entire past year (RUB 1.6 bln).
KEY ASSUMPTIONS
-
Total passenger traffic of the Company increasing by 15% in 2024 followed by moderate average growth of 4% annually;
-
FFO margin before net interest payments and taxes exceeding 50% in 2024–2026;
-
Capital expenditures remaining moderate (RUB 300–400 mln annually) in 2024–2026;
-
No dividend payments in 2024 and moderate payments (RUB 300–400 mln annually) in 2025–2026.
POTENTIAL OUTLOOK OR RATING CHANGE FACTORS
The Stable outlook assumes that the rating will highly likely stay unchanged with the 12 to 18-month horizon.
A positive rating action may be prompted by:
-
A significant qualitative improvement in the business profile, market position, and corporate governance practices;
-
Ratio of capital expenditures to revenues declining stably below 10%.
A negative rating action may be prompted by:
-
A significant increase in leverage (total debt to FFO before net interest exceeding 1.0x), and the ratio of FFO before net interest to interest declining to 5.0x;
-
Short-term liquidity indicator declining below 0.8x.
RATING COMPONENTS
Standalone creditworthiness assessment (SCA): aa-.
Support: none.
ISSUE RATINGS
There are no outstanding issues.
REGULATORY DISCLOSURE
The credit rating has been assigned to Joint Stock Company “Terminal Vladivostok” under the national scale for the Russian Federation based on the Methodology for Assigning Credit Ratings 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 credit rating of Joint Stock Company “Terminal Vladivostok” was published by ACRA for the first time on November 2, 2022. 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 Joint Stock Company “Terminal Vladivostok”, information from publicly available sources, and ACRA’s own databases. The credit rating is solicited and Joint Stock Company “Terminal Vladivostok” 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 no additional services to Joint Stock Company “Terminal Vladivostok”. No conflicts of interest were discovered in the course of credit rating assignment.
