The credit rating of PJSC MOESK (hereinafter, the Company, or MOESK) is based on a high likelihood of extraordinary support from the key shareholder, PJSC "ROSSETI" (hereinafter, Rosseti; ACRA rating AAA(RU), outlook Stable), its very strong operating profile, very high business profitability, moderate leverage, and strong liquidity. The standalone creditworthiness assessment (SCA) is restrained by weak cash flow, which is due to substantial capital expenditures.
MOESK is a regional electric power grid company operating in Moscow and the Moscow Region. The key shareholders of the Company are PJSC Rosseti (50.9%), PJSC Lider (an asset management company of NPF Gazfond) (17.6%), and Bank GPB (JSC) (9.8%).
Key rating assessment factors
High likelihood of extraordinary support from the key shareholder (PJSC Rosseti). MOESK is an infrastructure monopoly that supplies electricity to the Moscow Region, a political and economic center of Russia. The Company’s geographical position determines its strategic role in many state projects. For many years, MOESK has been the most profitable regional electric grid company in Russia, and no support has been required from its shareholders. However, certain cases of extraordinary support from Rosseti to its subsidiaries and affiliated companies indicate that such support is very likely in a critical situation.
Infrastructure monopoly with moderate regulatory risk. The fact that MOESK serves the Moscow Region, the leading region among Russian regions in terms of socio-economic development, eliminates regulatory risks for the Company because it reduces the likelihood of socio-political factors affecting tariff decisions and ensures a good level of payment discipline. Despite the fact that the tariffs’ growth rate in the Moscow Region on average lagged behind inflation in 2013–2018, their size allowed the Company to keep a very high level of profitability: 26% by FFO before interest and taxes. According to ACRA estimates, profitability will average 25–27% by FFO before interest and taxes in 2019-2021.
ACRA points to the improvement in the Company’s free cash flow. Profitability of MOESK’s free cash flow entered a positive zone (+1%) in 2018 vs. -6% in 2016 and -1% in 2017. ACRA expects the profitability of the free cash flow to grow in the forecast period as the Company passes the investment peak and capital expenditures decline by more than one third by 2021 compared with 2019. The ratio of capital expenditures to revenues will decrease from 18% in 2019 to 11% in 2021.
Moderate leverage, strong liquidity and strong debt service indicators. As of March 31, 2019, the Company’s loan portfolio totaled RUB 90 bln. 48% of the loan portfolio accounts for bond loans, while the rest is represented by bank loans. According to ACRA, the qualitative assessment of the Company’s debt load is high despite peak repayments in 2020 (considering the likelihood of repayment of the offer for bond loans), as the volume of undrawn credit lines exceeds the total amount of debt, which coupled with the expected positive free cash flow provides for the high assessment of the Company’s liquidity. The weighted average ratio of total debt to FFO before net interest payments is estimated at 2.2x for the period between 2016 and 2021, but ACRA expects this figure to decline to 1.26x by 2021. The weighted average ratio of FFO before net interest payments to interest payments for 2016-2021 is estimated at 5.3x. At the same time, the Agency points to a gradual decrease in the effective borrowing rate of the Company, which coupled with a reduction in the total debt will lead to a growth of the ratio to 8.4x in 2021.
- The Company will implement its capital development program as planned (from RUB 29.8 bln in 2019 down to RUB 18.9 bln in 2021);
- The dividend will amount to 50% of the IFRS net profit.
Potential outlook or rating change factors
The Stable outlook assumes that the rating will most likely stay unchanged within the 12 to 18-month horizon.
A negative rating action may be prompted by:
- Loss of control over the Company by Rosseti, or less tight relations between the Company and Rosseti;
- The Company’s investment commitments going up to the 2014 level amid tougher tariff regulation, including systematic tariff freezes;
- Substantial deterioration in access to external sources of liquidity.
Support: group — SCA plus 2 notches.
Rationale. The issue represents senior unsecured debt of MOESK. Due to the absence of either structural or contractual subordination of the issue, ACRA regards it as pari passu with other existing and future unsecured and unsubordinated debt obligations of the Company. According to the ACRA methodology, and taking into account high creditworthiness and moderate leverage, as well as the absence of any substantial secured debt obligations, the Agency applies a simplified approach, under which the credit rating of the issue is equivalent to that of the Company, i.e. AAA(RU).
Key issue properties
Issuer’s credit rating
ААА(RU), outlook Stable
Type of security
Certified exchange-traded interest-bearing non-convertible unregistered bond subject to mandatory centralized storage, 001Р-01 series
RUB 8 bln
Final placement date
April 23, 2019
October 18, 2022
The credit ratings of PJSC MOESK and the bonds issued by PJSC MOESK (ISIN RU000A100AD8) have been assigned under the national scale for the Russian Federation based on the Methodology for Credit Ratings Assignment to Non-Financial Corporations under the National Scale for the Russian Federation, the Methodology for Analyzing Relationships Between Rated Entities and the State, the Methodology for Analyzing Member Company Relationships within Corporate Groups, and the Key Concepts Used by Analytical Credit Rating Agency within the Scope of Its Rating Activities. In the course of assigning credit rating to the bond issue above, the Methodology for Assigning Credit Ratings to Individual Issues of Financial Instruments under the National Scale of the Russian Federation has also been used.
The credit rating of PJSC MOESK was first published by ACRA on June 6, 2018. The credit rating and its outlook are expected to be revised within one year following the publication date of this press release.
A credit rating has been assigned to the bonds (RU000A100AD8) issued by PJSC MOESK for the first time. The credit rating is expected to be revised within one year following the publication date of this press release.
The credit ratings have been assigned based on the data provided by PJSC MOESK, information from publicly available sources as well as ACRA’s own databases. The credit ratings are solicited, and PJSC MOESK participated in their assignment.
Disclosure of deviations from the approved methodologies: the "company size" factor was assessed with the deviation from the assessment range set forth in the methodology. This deviation was due to the fact that PJSC MOESK is the largest regional power grid company.
No material discrepancies between the provided data and the data officially disclosed by PJSC MOESK in its financial statements have been discovered.
ACRA provided additional services to PJSC MOESK. No conflicts of interest were discovered in the course of credit rating assignment.