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 infrastructure bonded loan 4-06-12755-A issued by OJSC Main Road from 'A+' to 'A++', with a stable outlook.
The 'A++' rating indicates that bonded loan 4-06-12755-A qualifies as an extremely reliable bonded loan, with the lowest imaginable risk of a delay in meeting obligations.
Bonded loan 4-06-12755-A in the amount of RUB 8,172.9 million maturing in 5,824 days was 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 4-06-12755-A.
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. One of such bond issues is the currently rated bonded loan 4-06-12755-A of OJSC Main Road.
The positive rating action in respect of bonded loan 4-06-12755-A issued by OJSC Main Road was motivated by the successful launch of commercial operation of the completed highway, the government's direct guarantee for bonded loan 4-06-12755-A in addition to the state guarantees provided for this bonded loan under the concessionary agreement, similar to the other bonded loans issued for the project, the Government's commitment to the project financing, the high earning power of the project, the bonded loan Issuer's fairly high creditworthiness, 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 direct secondary guarantee no. 04-04-10/194 as of October 20, 2011 was signed by the Deputy Minister of Finance of the Russian Federation. Russia's Ministry of Finance and OJSC Main Road concluded a corresponding state guarantee agreement as of October 20, 2011. The direct state guarantee only applies to the nominal value of the bond issue (i.e. up to RUB 8,173 million), but the amount payable under this guarantee shall be paid within one month should OJSC Main Road default, while payments under the state obligations provided for by the concessionary agreement shall be effected within one year.
One of the key positive rating drivers is also 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 4-06-12755-A. This year, we affirmed the Issuer's national scale rating at 'A+'.
The issuer effects coupon payments on both the rated bonded loan (4-06-12755-A) and 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 was paid directly under bonded loan 4-06-12755-A on December 11, 2013, coupon 2 on December 10, 2014. The total amount in coupon payments on this loan for two years reached RUB 1,540.4 million.
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 bonded loan 4-06-12755-A.
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 bonded loan 4-06-12755-A.
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 constraining the credit rating of bonded loan 4-06-12755-A.
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 credit rating of bonded loan 4-06-12755-A. 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. For bonded loan 4-06-12755-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 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 in 2014.
OJSC Main Road, the bond issuer, was rated 'A+' on the national scale 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 bonded loan 4-06-12755-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.