Press Releases / 30.12.2015

Press Release as of 30.12.2015

Main Road OJSC

AK&M Rating Agency has affirmed the national scale credit rating of Main Road, OJSC at 'A+'. The outlook is stable.

The 'A+' rating indicates that Main Road, OJSC is a highly creditworthy borrower. The risk of a failure to meet obligations in time is insignificant. The rating assignment was based on the Credit Rating Methodology for Project Financing Companies rev. February 16, 2015, including the amendments and additions dated October 12, 2015.

Main Road, OJSC is a special-purpose vehicle established under the Russian legislation to implement the project of construction and operation 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 junction, and the M-1 federal highway). Main Road, OJSC 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 concession agreement was concluded specifying Main Road, OJSC as the concessionary and the Russian Federation (Russia's Federal Road Agency) as the concession provider (hereinafter referred to as the concession agreement). The road is intended for operation through December 2042. Total capital investment in the road construction was RUB 25 billion, gross investment reached RUB 32.1 billion including RUB 11 billion from the Investment Fund of the Russian Federation, RUB 16.8 billion invested by non-state pension funds. A substantial amount of financing was obtained through bonded loans. Three bond issues of the rated Company for a total amount of almost RUB 17.6 billion (at nominal value) are currently trading in the Russian stock market. The road is completed is put into operation, with tolls being collected since January 1, 2014.

The key positive rating drivers for Main Road, OJSC include state guarantees for the project as provided for by the concession agreement, the Government's commitment to the project financing, a flexible bonded loan repayment scheme, a high internal rate of return, positive cash flows sufficient to cover the debt servicing obligations, the growing revenue and profit performance as well as low risks incidental to the highway operation.

The availability state guarantees as provided for by the concession agreement can be regarded as an essential positive argument for the high credit rating of Main Road, OJSC. Under the concession agreement between the Government and Main Road, OJSC, all principal debt and interest on the bonded loans issued shall be fully repaid by the state in case the concession 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. In many respects, the reliability of bonded loans is aligned with the creditworthiness of Russia.

We also appreciate the Government's commitment to the project financing. The Investment Fund of the Russian Federation is a large source of funding for the highway construction project (RUB 11 billion). Public investments (apart from the state guarantees) account for over 30% of the total amount of project financing. The Government's financial commitments may be regarded as a positive argument. A substantial portion of financing for the highway construction project (RUB 11 billion) comes from the Investment Fund of the Russian Federation. The overall share of public financing for the project (without state guarantees) exceeds 30%. The Government's financial commitment may be regarded as a positive rating driver. The regulatory bodies maintain special supervision over the project implementation, thereby increasing security of investment.

The successful completion of the project recently commissioned for commercial operation also contributes essentially to the credit rating. Since January 1, 2015, Main Road, OJSC has been deriving positive cash flows from its core business. For the 9-month period in 2015 the company's revenue was almost RUB 1.7 billion, earnings before interest, taxes, depreciation, and amortization (EBITDA) exceeded RUB 1.1 billion.

Another positive key rating argument is the flexible bonded loan repayment scheme. All the bond issues have ultimate repayment deadlines: October 30, 2028 for bond issue 4-03-12755-A, November 22, 2028 for bond issue 4-06-12755-A, October 30, 2029 for bond issue 4-07-12755-A.The borrower, however, has an option to make the early loan repayment at its discretion. This increases the Company's capability to control the amount of financial debt and to meet related obligations.

The activity of Main Road, OJSC has a high internal rate of return (19.2%), while its debt servicing and repayment expenses are properly covered by the Company'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) after the highway project was commissioned is 2.38. Therefore, the expected projected cash flows in terms of the project financial model are sufficient to meet the bonded loan servicing and repayment obligations.

Another positive signal for the Company's high rating is a low level of operation-related risks, seeing as the road operation is largely limited to the toll collection, while the routine maintenance, current and capital repairs require relatively low technology, simple mechanisms and affordable raw materials.

At the same time, a large share of borrowings in the financing of its core activity, a risk of higher cost of borrowings and a risk of lower-than-projected incomes due to shrinking effective demand for the Company's services are working against the credit rating of Main Road, OJSC.

The substantial amount of borrowings raised to finance the activity of Main Road, OJSC is a key rating constraint. The percentage of borrowed capital in the project financing is estimated at 56%. The long-term debt obligations (principal debt) on the bonds issued by the Company almost reaches RUB 17.6 billion or 60% of the Company's total balance. 

Another major risk factor is a notable increase in the amount of coupon payments in 2016, seeing as coupon rates depend on inflation trends. The coupon rate on bond issue 4-03-12755-A was 7.9% p.a. in 2014, 8.4% in 2015, will reach 15.3% p.a. in 2016. The coupon rate on bond issue 4-06-12755-A will rise to 17.5% p.a. in 2016 from 9.1% p.a. in 2014, 10% in 2015. The coupon rate on bond issue 4-07-12755-A will increase to 15.3% p.a. in 2016 from 7.9% p.a. in 2014 and 8.4% in 2015. While actual coupon payments were a mere 4.2% above the projected levels, actual expenses for coupon payments in 2016 will exceeded the forecast almost three times.

The continuing deterioration of the macroeconomic environment in Russia also poses serious risks for Main Road, OJSC. Our review of the Company's financial model and current economic development problems demonstrates that the main external source of destabilization for the activity of Main Road, OJSC is the risk of insufficient solvency of the legal entities and individuals using the toll road as a new junction of the Moscow Automobile Ring Road (MKAD) and the M-1 'Belarus' Moscow – Minsk federal highway.

Company name: "Main Road", Open Joint-Stock Company.

Location: Nauchny proezd 19, Moscow, Russia

AK&M Rating Agency assigned a credit rating to Main Road, OJSC for the first time on December 30, 2011. The last rating action in relation to the Company was taken on December 30, 2014. All rating action announcements are available on the website.

The rating is valid until January 2017. AK&M Rating Agency may revise the rating and/or the outlook during this period if circumstances fundamentally influencing the Company's creditworthiness are revealed.

For estimation purposes, we completely rely on the reliability of information provided by the Company. The rationale for AK&M Rating Agency's judgment on the rating may include information acquired from other sources we deem to be reliable; however, the agency does not check the input data exhaustively and disclaims all responsibility for their possible errors.

This press release is based on the Statement of assignment of a credit rating to Main Road, OJSC. The rating assignment was based on the Credit Rating Methodology for Project Financing Companies rev. February 16, 2015, including the amendments and additions dated October 12, 2015.

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.


AK&M Rating Agency

Ul. Gubkina 3, Moscow, Russia

Phone no. (495) 916-70-30, fax no.: (499) 132-69-18.