The credit rating of DME Limited (hereinafter, the Company, or Domodedovo) reflects the Company's success in maintaining the strong business profile, which allowed it to demonstrate a minimum fall in passenger traffic in 2020 as compared to other airports of the Moscow Aviation Hub (MAH). ACRA notes a gradual recovery of the air transportation market, which has resulted in the change of the credit rating outlook from Negative to Stable.
The Company's financial profile is still under pressure from both the high leverage caused by waning incoming cash flows in 2020 and the increased debt on the back of weakening ruble. Large debt repayments expected in 2022 are additional factors affecting the financial profile.
DME Limited is a group of companies that owns and operates the Domodedovo airport, the second largest airport in Russia in passenger and cargo volume. Dmitry Kamenshchik is the ultimate controlling beneficiary of the Company.
Key rating assessment factors
Stabilization and gradual recovery of the Company's operations and financial performance. In 2020, the passenger traffic at the Domodedovo airport decreased by 42%, while the overall drop at MAH airports was 52%. ACRA notes that the situation in the Russian aviation market is stabilizing, but the pace of further recovery will depend on the dynamics of the COVID-19 incidence in the coming months, the rate of vaccination, and the conditions for resuming flights to/from other countries. According to the Agency's forecasts, the domestic air transportation segment may recover to the pre-crisis level as early as 2021–2022, and the international segment — in 2023–2024.
ACRA estimates the Company's revenue in 2020 at RUB 20–21 bln (-44% compared to 2019) and FFO before net interest payments and taxes at about RUB 5.5-6 bln (-57% y-o-y). The FFO margin before net interest payments and taxes fell, according to the Agency's calculations, from 35% in 2019 to 27% in 2020. ACRA expects the margin to recover by the end of 2021. According to ACRA's forecasts, revenue and FFO before net interest payments and taxes may return to the level of 2019 in 2023.
The leverage is still rather high. According to ACRA's estimates, the total debt of the Company at the end of 2020 was RUB 66.8 bln, which is 13% more than in 2019. This is explained by the growth in the foreign currency component of the debt portfolio on the back of the weakening of the ruble in 2020. Combined with a decrease in cash inflows, this led to a sharp increase in the leverage: the ratio of total debt to FFO before net interest payments equaled to 11.8x in 2020 versus 4.9x a year earlier. Against the background of the recovery of the Company's business, ACRA expects the ratio to go down below 7.0x by the end of 2021 and to return to the pre-crisis level of 4.5–5.0x in 2022.
Medium liquidity. In November 2021, Domodedovo is to redeem its USD 350 mln Eurobonds. In order to do that and to redeem a portion of other Eurobonds due in 2023, the Company issued another Eurobond for USD 453 mln in January. In 2022, the Company will have to redeem two issues of domestic bonds for the total of RUB 15 bln. Additional pressure on the Company's liquidity comes from the negative free cash flow (FCF). The Company has maintained dividend payouts even in the crisis year of 2020, but reduced their size. Capital expenses have also been cut. The negative FCF increases the Company's dependence on external sources of liquidity in refinancing its current liabilities.
- Gradual recovery in passenger volume up to the level of 2019 by 2023;
- Annual average USD/RUB exchange rate at 70–72 in 2021–2023;
- Annual dividend below RUB 3 bln in 2021–2023.
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 positive rating action may be prompted by:
- The weighted average ratio of total debt to FFO before net interest payments going down below 6.0x;
- The weighted average ratio of FFO before net interest payments to interest payments going up above 5.0x.
A negative rating action may be prompted by:
- The weighted average ratio of FFO before net interest payments to interest payments going down below 2.5x;
- Persistent restrictions in the international air transportation segment;
- Deteriorating access to sources of liquidity.
Standalone creditworthiness assessment (SCA): a-.
Bond loan, Exchange-traded interest-bearing certified bearer bonds issued by Domodedovo Fuel Facilities Ltd (ISIN RU000A0ZYM21), maturity date: December 20, 2022, issue volume: RUB 10 bln, — A-(RU);
Bond loan, Exchange-traded interest-bearing certified bearer bonds issued by Domodedovo Fuel Facilities Ltd (ISIN RU000A100J18), maturity date: June 30, 2022, issue volume: RUB 5 bln, — A-(RU).
Rationale. The bond issues are senior unsecured debt obligations of Domodedovo Fuel Facilities Ltd., which is an operational subsidiary of DME Limited. The credit ratings were assigned on the basis of public irrevocable offers from DME Limited as a holding company and from key operational companies of the holding company generating the bulk of the Group’s cash flow. The list of offerers is identical to the list of companies acting as sureties under Eurobonds issued by the Group, which, in ACRA’s opinion, is indicative of no structural subordination of the issues. Therefore, and in view of no contractual subordination, ACRA ranks the bonds pari passu with other existing and future unsecured and unsubordinated obligations of the Company. At the same time, ACRA notes the lack of a suretyship from the owner of Domodedovo’s assets – Hacienda Limited (Cyprus) – with respect to both the rated bond issues and Eurobonds issued earlier. In view of the above, ACRA used a detailed approach to assess loss recovery rate. According to ACRA’s methodology, the recovery rate for Domodedovo’s unsecured debt is classified into category I, and therefore, the credit ratings of the issues are on par with the credit rating of DME Limited — A-(RU).
The credit ratings of DME Limited and the bonds (ISIN RU000A0ZYM21, RU000A100J18) issued by Domodedovo Fuel Facilities Ltd., a subsidiary of DME Limited, were 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 and the Key Concepts Used by the Analytical Credit Rating Agency within the Scope of Its Rating Activities. The Methodology for Assigning Credit Ratings to Individual Issues of Financial Instruments Under the National Scale of the Russian Federation was also applied to assign the credit ratings to the specified issues.
The credit ratings of DME Limited and the bonds (ISIN RU000A0ZYM21, RU000A100J18) issued by Domodedovo Fuel Facilities Ltd. were first published by ACRA on November 29, 2017, December 26, 2017, and July 4, 2019, respectively. The credit rating and outlook of DME Limited and the credit ratings of the bonds (ISIN RU000A0ZYM21, RU000A100J18) issued by Domodedovo Fuel Facilities Ltd. are expected to be revised within one year following the publication date of this press release.
The credit ratings are based on the data provided by DME Limited, information from publicly available sources, as well as ACRA’s own databases. The credit ratings are solicited, and DME Limited participated in their assignment.
In assigning the credit ratings, ACRA used only information, the quality and reliability of which was, in ACRA's opinion, appropriate and sufficient to apply the methodologies.
ACRA provided no additional services to DME Limited and Domodedovo Fuel Facilities Ltd. No conflicts of interest were discovered in the course of credit rating assignment.