The credit rating of Western High-Speed Diameter JSC (hereinafter WHD JSC, or the Company) is based on the continued very high level of support for the Company from Saint Petersburg (ACRA rating AAA(RU), outlook Stable) (hereinafter, the City, or the Supporting Entity) and the City’s very strong influence on the Company’s operations.
The rating was determined without taking into account the Company’s stand-alone creditworthiness because the activities of WHD JSC are fully focused on the achievement of regional goals and objectives, while the Company’s ability to promptly service its debt obligations primarily depends on the support provided to the Company by the Government of Saint Petersburg. Therefore, ACRA considers carrying out a stand-alone creditworthiness assessment to be inappropriate and only uses the Methodology for Analyzing Rated Entities Associated with a State or a Group.
The credit rating of WHD JSC is two notches lower than the rating of the City, which reflects the possibility of technical delays on the part of regional authorities when providing support should the Company encounter financial difficulties.
WHD JSC was founded in 1997 by the Committee for Property Management of Saint Petersburg (now known as the Committee for Property Relations of Saint Petersburg), which currently holds a 100% stake in the Company.
WHD JSC is the owner of one of the largest intercity toll motorways in Russia, the Western High-Speed Diameter (hereinafter, the Motorway), which was built and is being operated as part of a project carried out under a trilateral public-private partnership (PPP) agreement concluded by the Government of Saint Petersburg, WHD JSC and Northern Capital Highway LLC until 2042.
Key rating assessment factors
Very strong level of support. The state exercises direct shareholding and operational control over the Company’s activities. Besides this, the City has significant influence on its creditworthiness.
The Company’s main source of funding is the City budget. In particular, WHD JSC receives annual state support from the Government of Saint Petersburg in the amount required to fully cover coupon payments for existing bond issues. In addition, budget investments are provided for the construction of interchanges that increase the traffic capacity of the Motorway, which in the future may lead to an increase in traffic and the Company’s revenues. State support is provided by increasing the size of WHD JSC’s charter capital.
The operational part of the Motorway was constructed with substantial support from the state; federal investments accounted for more than 40%, while the entire nominal volume of debt obligations issued by the Company (RUB 25 bln) was guaranteed by the Ministry of Finance of the Russian Federation.
The state, represented by the City, is currently playing a key role in the formation of the pricing policy for the Motorway and directly influences the Company’s financial stability.
The Agency notes that in the event of a change in the amount of payments charged to users of the Motorway, the size of state support may be revised, since with an increase in revenue due to a possible increase in tariffs and traffic, the size of support may be reduced.
The Agency also notes that as the City is a party to the PPP agreement, the Company’s failure to fulfil its obligations under the agreement will result in a significant financial risk to the City budget.
The Company plans to attract additional financing under an existing loan agreement with EDB (hereinafter, the Creditor). Currently the total size of the limit is no more than RUB 7.5 bln. Expenses for repaying this loan must be included in the State Program “Development of Saint Petersburg’s Transport System” (hereinafter, the State Program). The fulfilment of WHD JSC’s obligations is also guaranteed by the shareholder agreement between the City and the Creditor (hereinafter, the Shareholder Agreement). ACRA notes that the conditions of the loan agreement include a grace period on interest payments. The remaining period is 1.5 years.
The high degree of dependence of WHD JSC and the Supporting Entity on homogeneous risk factors implies that the main source of financing for the Company’s activities is the City budget. Macroeconomic factors that determine the revenues of the City budget will have a tangible impact on the amount of funds allocated to finance road construction.
- Amendments to the State Program providing for the provision of a loan in 2021 and coverage of coupon payments for existing bond issues in full from 2021 to 2023;
- Loan Agreement remaining in force until the expiration of the limit availability period (60 months);
- Fulfilment of the Shareholder Agreement and loan agreement;
- Fulfilment of all suspensive conditions of the loan agreement;
- Maintaining the level of budget investments and guarantees provided from the federal budget and City budget.
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:
- Increased systemic importance of the Company for the region and considerable expansion of its functionality.
A negative rating action may be prompted by:
- Significant reduction of the size of budget investments, in particular, for servicing debt obligations;
- Higher volume of borrowings, the principal debt of which is not covered by the City or other guarantees with comparable credit quality;
- Lower systemic importance of the Company, in particular, the reallocation of its functions to other market participants;
- Restructuring of the loan agreement, including with provision for the deterioration of the basic prerequisites taken into account when determining the Company’s rating;
- Invalidation of the Shareholder Agreement;
- The Company issuing bonds with relation to which there is no commitment to cover expenses for repaying the principal debt in the State Program.
Support: Saint Petersburg — parity with the City minus 2 notches.
No outstanding issues have been rated.
The credit rating has been assigned under the national scale for the Russian Federation based on the Methodology for Analyzing Rated Entities Associated with a State or a Group and the Key Concepts Used by the Analytical Credit Rating Agency within the Scope of its Rating Activities.
The credit rating of Western High-Speed Diameter JSC was published by ACRA for the first time on August 4, 2020. The credit rating and its outlook are expected to be revised within one year following the publication date of this press release.
The credit rating was assigned based on data provided by Western High-Speed Diameter JSC, information from publicly available sources, and ACRA’s own databases. The credit rating is solicited, and Western High-Speed Diameter JSC participated in its assignment.
In assigning the credit rating, 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 Western High-Speed Diameter JSC. No conflicts of interest were discovered in the course of credit rating assignment.