Press Releases / 11.12.2014
Press Release as of 11.12.2014
Main Road OJSC
AK&M Rating Agency affirmed the national scale credit rating of bonded loan 4-07-12755-A issued by OJSC Main Road at 'A', tier 1, with a positive outlook.
The 'A' rating indicates that bonded loan 4-07-12755-A of OJSC Main Road qualifies as a highly reliable bonded loan. The risk of a failure to meet obligations in time is low, the full or partial debt restructuring risk is minimal.
Bonded loan 4-07-12755-A in the amount of RUB 1.4 billion maturing in 6,188 days is meant to be one of the sources of financing for the construction / subsequent operation project of a new junction between the Moscow Automobile Ring Road and the federal highway M-1 'Belarus' Moscow – Minsk, a modern 18.5 km long high-speed toll highway. OJSC Main Road is the principal investor in the project and the issuer of bonded loan 4-07-12755-A.
OJSC Main Road is a special-purpose vehicle established in accordance with the Russian law to implement the construction and operation project of the toll highway "New junction between the Moscow Automobile Ring Road (MKAD) and the M-1 'Belarus' Moscow – Minsk federal highway" (a connecting highway between the MKAD near the Molodogvardeyskaya street interchange, and the M-1 federal highway). OJSC Main Road is a special purpose vehicle established by a consortium of investors including ALPINE BAU (Austria), BRISA-Auto-estradas de Portugal (Portugal), FCC (Spain), LEADER Management Company, Stroygazconsulting LLC, Gazprombank OJSC. In pursuance of this public-private partnership project, a 30-year concessionary agreement was concluded specifying OJSC Main Road as the concessionary and the Russian Federation (Federal Road Agency) as the concession provider (hereinafter referred to as the concessionary agreement). To a large extent, the highway construction project was financed with infrastructural bonds. One of such bond issues is the currently rated bonded loan 4-07-12755-A of OJSC Main Road.
We regard the construction completion and the successful operation by the Issuer of the main facility (the high-speed toll road), the state guarantees for bonds 4-07-12755-A as provided for by the concessionary agreement, similar to the other bonded loans issued for the project, the bonded loan Issuer's fairly high creditworthiness and ability to meet current coupon payment obligations, the positive cash flows sufficient to cover the Issuer's expenses for the servicing and repayment of obligations, the high earning power and profitability of the project and low operational risks incidental to it as the main positive rating drivers for bonded loan 4-07-12755-A of OJSC Main Road.
Completion of the construction process caused a general reduction in the project risk. The highway has been in operation since the beginning of 2014. OJSC Main Road's revenue from the highway operation for 9 months of 2014 exceeded RUB 937 million.
One of the key positive rating drivers is the availability of indirect state guarantees: under the concessionary agreement between the Government and OJSC Main Road, all principal debt and interest on the bonded loans issued shall be fully repaid by the state in case the concessionary agreement is terminated (should the concessionary default on its obligations, among other reasons). The bonded loan obligations shall be discharged even if the project or its implementation faces contingencies including considerable deterioration of the project's financial metrics. We also appreciate the Government's commitment to the project financing. The Government's special supervision over the project implementation increases security of investment.
The Issuer's relatively high creditworthiness also contributes to the credit rating of bonded loan 4-07-12755-A. This year, we affirmed the Issuer's national scale rating 'A', stable outlook.
The issuer effects coupon payments on the rated bonded loan (4-07-12755-A) as well as its other bonded loans without fail. OJSC Main Road's obvious diligence in meeting the obligations is a positive rating argument for the issued bonded loans. The first annual coupon on loan 4-07-12755-A was paid on November 19, 2013, coupon 2 on November 18, 2014. The total amount of coupon payments on this loan for the 2-year period was RUB 249,914 thousand.
Our review of the project financial status indicates the sufficient coverage of all expenses for the repayment of obligations due in the following 18-month period by the Issuer's positive cash flows. Projected debt coverage ratios (cash flows available for loan servicing purposes in relation to the corresponding principal debt servicing and repayment expenses) during the bond debt repayment period are constantly above 1. Therefore, the expected projected cash flows in terms of the project financial model are sufficient to meet the bonded loan servicing and repayment obligations.
The prospective efficiency review indicates that the project is highly profitable. The internal rate of return under the project (IRR) is about 12%. This relatively high percentage highlights the appreciable potential in the way of accumulating sufficient resources for meeting the obligations on bonded loan 4-07-12755-A.
The high rating is also supported by the low risks immediately related to the highway operation following from the terms of the concessionary agreement and the risk management policy pursuant to the project. The Company has a clear-cut breakdown of the timeframe, events and forms of its control over the quality and terms of operation.
At the same time, the risk of underperformance in the way of projected revenues, the heavy borrowings the Issuer relied upon to finance the project, and the high uncertainty as to the bonded loan servicing cost are working against the credit rating of the bonded loan.
We regard the risk of seeing incomes drop below the target, primarily due to the lower demand from the highway users, as a negative rating driver. As a whole, the currently available traffic volume and traffic growth rate forecasts seem to be realistic. However, with no comparable projects to be taken as reference, forecasting traffic on toll highways in Russia is somewhat complicated, which generates high uncertainty as to the Company's incomes. Should the market regard the projected tariff rates as unreasonably high, demand for the toll highway services may come short of expectations.
We regard the heavy borrowings needed for the project development as a risk factor for bonded loan 4-07-12755-A. Borrowed funds raised through bonded loans account for more than 60% of the financing required for the project implementation. OJSC Main Road's total debt on the bonded loans (principal debt) reaches almost RUB 17.6 billion. The debt burden is expected to peak in 2015, with principal liabilities reaching RUB 21.1 billion. Overall, OJSC Main Road will pay about RUB 41 billion in discharge of the debt. Provided that the Issuer meets its financial targets, its financial independence ratio (equity to total assets ratio) will stay below the recommended level from 2014 through 2023. Only in 2024 will this ratio reach 0.54 and continue to increase.
Another risk factor is the total lack of certainty as to the cost of debt arising from the bonded loans. For bonded loan 4-07-12755-A, as well as other bonded loans of OJSC Main Road, coupon interest rates directly depend on the inflation rate and/or Russia's GDP growth rate on a long forecasting horizon. The poor predictability of the long-term macroeconomic environment implies high uncertainty of the debt servicing cost for the Company.
To date, OJSC Main Road has placed three bond issues. Bonded loan 4-03-12755-A (the total nominal amount being RUB 8 billion) was placed 11/22/2010, final maturity date being 10/30/2028; bonded loan 4-06-12755-A (the nominal amount being RUB 8.17 billion) was placed 12/28/2012 and will mature on 12/8/2028; bonded loan 4-07-12755-A was placed 11/20/2012, its nominal amount is RUB 1.4 billion, maturity date is 10/30/2029.
In 2014, AK&M Rating Agency assigned an 'A' (tier 1) credit rating to bonded loan 4-03-12755-A, with a positive outlook. Bonded loan 4-06-12755-A was rated 'A+' in 2014, with a stable outlook.
Full name: "Main Road", Open Joint-Stock Company.
This press release is based on the statement of assigning a credit rating to bonded loan 4-07-12755-A issued by OJSC Main Road.
The rating, along with any information and conclusions provided in this press release, only conveys our creditworthiness opinion and shall not be construed as a recommendation to purchase or sell securities, or to lend funds.
AK&M Rating Agency shall not be held liable for any interpretations, inferences and consequences related to the application of results of the rating estimation procedure by any third parties.
AK&M Rating Agency is a leading independent national rating agency engaged in rating activities since 1993. CJSC AK&M Rating Agency is accredited by the Ministry of Finance of the Russian Federation (order no. 452 as of September 17, 2010) and is on the Central Bank of Russia's Register of Accredited Rating Agencies.
CJSC Analysis, Consulting and Marketing Rating Agency
Ul. Gubkina 3, Moscow, Russia
Phone no. (495) 916-70-30, fax no.: (499) 132-69-18.