Press Releases / 28.10.2013
Press Release as of 28.10.2013
Main Road OJSC
AK&M Rating Agency confirmed the 'A' national scale credit rating assigned to bonded loan 4-07-12755-A issued by OJSC Main Road. The outlook is positive.
The 'A' rating indicates that bonded loan 4-07-12755-A of OJSC Main Road qualifies as a highly reliable bonded loan. Risk of a delay in meeting liabilities is relatively low, restructuring risk for a loan / part of a loan 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 of the Moscow Automobile Ring Road and federal highway M-1 'Belarus' Moscow – Minsk, a modern 18.5 km long high-speed toll highway. The loan was placed on November 20, 2012 at face value. OJSC Main Road is the principal investor in the project and the issuer of bonded loan 4-07-12755-A. The issue assumes semi-annual coupon payments. The loan will be repaid in equal installments in the last eight years of the loan period ending in October 2029.
We regard the state guarantees to cover all the payments under the bonded loans of OJSC Main Road (should the issue default on its liabilities), the government's commitment to the project financing, special status of the bondholders and lead manager's stature, sufficient positive cash flows to secure the maintenance costs and repay the liabilities, high earning power of the project, and low risks incidental to the highway operation as essential positive rating drivers for bonded loan 4-07-12755-A of OJSC Main Road.
One of the key arguments for the high rating is that the concessionary agreement provides a state guarantee to cover all the payments under the bonded loans of OJSC Main Road should the issuer default on its liabilities or should the agreement be terminated. Under the concessionary agreement between the state 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 results. It should also be highlighted that the government's commitment to the project financing inspires special control of the project implementation by the state supervisory bodies, which increases investors' security.
Besides, bonded loan 4-07-12755-A was acquired by the shareholders of the loan issuer, OJSC Main Road (whereas the other bonded loans meant to raise funds for the project are intended for free placement on financial markets), which provides certain support to the rating.
The lead manager, underwriter and paying agent for OJSC Main Road's bonded loan 4-07-12755-A, OJSC Gazprombank, which, given the high business standing and vast experience of this credit institution, may (to a certain degree) be regarded as a positive rating driver.
The Company's positive cash flows provide a comfortable coverage for any expenses related to the servicing and repayment of obligations. In particular, the minimum debt-service cover ratio (ratio of the cash flows available for debt servicing purposes to the respective debt servicing / principal repayment expenses) factoring in the reserve account and the funds currently available is 7.1. Therefore, the cash flows laid out within the project's financial model are enough to cover the debt servicing and repayment obligations. The projected schedule of payments on the Company's liabilities indicates absence of essential debt load peaks. To ease the debt burden brought about by major payments in discharge of the debt while implementing the project, the Company will use its reserve account for loan servicing purposes, placing free cash funds there in advance to repay the debt liabilities and interest on them. The bonds issued will be amortized on a straight line basis during the last 8 years preceding their maturity. The payment schedule analyzed indicates a sufficiently uniform accumulation of funds to repay the debt, without peak loads. The Company's repayment schedule is well balanced against its cash flows and implies high stability.
The project efficiency analysis indicates its high earning power. Internal rate of return (IRR) of the project is ca. 12%, which is relatively high and proving the appreciable efficiency and high potential of the project.
The high rating score is also essentially supported by the low risks immediately related to the construction and operation of the highway, arising from the terms and conditions of the concessionary agreement and the competent risk management policy pursuant to the project. The Company ensures due control, including specific terms, events and forms, of the quality and terms of service.
Given that the bonded loans account for the greater part of OJSC Main Road's debt liabilities, there is every reason to generally align the credit rating assigned to bonded loan 4-07-12755-A to the issuer's 'A' credit rating.
At the same time, the risk of lower projected revenues, high leverage due to extensive borrowing for the project and low degree of certainty as to the cost of the Company's bonded loans are working against the credit rating of OJSC Main Road's bonded loan 4-07-12755-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 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.
The project is apparently going to absorb a high amount of borrowed funds. Aggregate funds required for the highway construction (investments including capex, financial outlays etc.) amount to RUB 32.4 billion. Borrowed funds raised through bonded loans account for more than 60% of the project financing required for the project implementation. The Company's debt will reach its highest point in early 2014 as the principal liabilities will reach RUB 21.1 billion. Overall, OJSC Main Road will pay about RUB 41 billion in discharge of the debt. Provided that the Company meets its financial targets, its financial independence ratio (equity to total assets ratio) will stay within the 23-29% range from 2014 to 2023. With borrowed capital accounting for a large part of the Company's balance sheet assets, its liabilities will not be covered by its own funds. At the same time, considering the project parameters and the terms of financing, this ratio may be regarded as acceptable even for conservative investors, and the high percentage of borrowed funds in the Company's assets as justified.
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.
OJSC Main Road is a special-purpose vehicle established solely for implementing the building and operation project of the toll highway "New junction of MKAD (Moscow Automobile Ring Road) and the federal highway M-1 'Belarus' Moscow – Minsk" (a connecting highway between MKAD near the road interchange with Molodogvardeyskaya street, and the federal highway M-1). 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 (represented by the Federal Road Agency as its authorized agent) as the concession provider. Total cost of the highway construction (capital costs) incl. VAT is RUB 25.5 billion. The project is financed with borrowed funds (bonds) and funds allocated from the RF Investment Fund.
Construction of the road has been in progress since 2010, with completion expected in the fourth quarter of 1013. Commercial operation will start in 2014. Total dent of OJSC Main Road under bonded loans 4-03-12755-A, 4-06-12755-A and 4-07-12755-A is RUB 17.5 billion.
A as of July 1, 2013, assets of OJSC Main Road totaled RUB 30.5 billion, equity capital was RUB 668.5 million.
Full company name: Open Joint-Stock Company Main Road.
Short name: OJSC Main Road.
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 credit rating, along with any information and conclusions provided in this press release, only conveys our opinion on the credit standing and shall not be considered as advice on the purchase and sale of securities or the provision of loan facilities.
CJSC AK&M Rating Agency will not incur any responsibility for any interpretations, inferences and consequences related to the application of results of the rating estimation procedure by any third parties.
CJSC 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).
AK&M Ratings are recognized by the Central Bank of Russia (for providing unsecured lending facilities – Regulation 323-P), Vnesheconombank (for granting subordinated loans) and SME Bank (for its program of lending to SME businesses), RUSNANO (when selecting banks to provide cash and settlement services to project and engineering companies implementing investment projects), and the MICEX (for the Corporate Bond Index / MICEX CBI and Municipal Bond Index / MICEX MBI calculation and bond listing purposes). By a resolution of Russia's Government AK&M Ratings count for the recapitalization of banks. Besides, AK&M Rating Agency is recognized by AHML and accredited by SRO National Securities Market Association.
CJSC Analysis, Consulting and Marketing Rating Agency
ul. Gubkina 3
Press release by: A.G. Chumachenko
Phone no. (495) 916-70-30, fax no.: (499) 132-69-18