Press Releases / 30.12.2014
Press Release as of 30.12.2014
Main Road OJSC
AK&M Rating Agency raised the national scale credit rating of OJSC Main road from 'A' to 'A+'. The outlook is stable.
The 'A+' rating indicates that OJSC Main road is a highly creditworthy borrower. The risk of a failure to meet obligations in time is insignificant.
OJSC Main Road is a special-purpose vehicle established solely for implementing the building and operation project of the toll highway "New junction of 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 an SPV company established by a consortium of companies ALPINE BAU, BRISA-Auto-estradas de Portugal, FCC, LEADER Management Company, Stroygazconsulting LLC, and 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 infrastructure bonds issued by OJSC Main Road. The highway is constructed and put into operation, fees have been collected from motor vehicles since January 1, 2014.
The positive rating action was motivated by the successful launch of commercial operation of the completed highway, the state guarantees for the project as provided for by the concessionary agreement, the Government's commitment to the project financing, the high earning power of the project, the sufficient positive cash flows to cover the debt service and repayment obligations, the Issuer's ability to meet current coupon payment obligations and low risks incidental to the highway operation.
Completion of the construction project has generally reduced the risks arising from it. The highway has been operating since the start of 2014. Revenue of OJSC Main Road from the road 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. Besides, the Government has provided a direct state guarantee for bond issue 4-06-12755-A. We also appreciate the Government's commitment to the project financing. The Government's special supervision over the project implementation increases security of investment.
OJSC Main Road regularly effects coupon payments under the bonded loans. The issuer's diligence and commitment to meeting its obligations is a convincing positive argument for the credit ratings of its debt instruments.
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 servicing and repayment obligations as regards the bonded loans issued.
The prospective efficiency review indicates that the project is highly profitable. The project internal rate of return (IRR) is about 12%. This relatively high percentage highlights the appreciable potential in the way of accumulating sufficient resources for meeting the obligations on the bonded loans issued.
The high rating is also essentially 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 OJSC Main Road.
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 analogues 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 required for the project development as a risk factor for the creditworthiness of OJSC Main Road. Borrowed funds raised through bonded loans account for more than 60% of the financing required for the project. 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. The coupon interest rates on the bonded loans of OJSC Main Road 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 shall 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 4-07-12755-A, with a positive outlook. Bonded loan 4-03-12755-A was rated 'A+', with a stable outlook, while bonded loan 4-06-12755-A was rated 'A++' with a stable outlook in 2014.
Full name: "Main Road", Open Joint-Stock Company.
This press release is based on the Statement of assignment of a credit rating to OJSC Main Road.
The rating, along with any information and conclusions provided in this press release, only conveys our opinion on the Company's creditworthiness 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.