The credit rating of Russian Post (hereinafter, the Company) is assigned on par with the Russian Federation in view of a very high degree of support from the state and a low dependence of the state and the Company on the same risk types. ACRA notes the Company's strong market positions determined by the exclusivity of socially important functions the Company implements in the Russian Federation, including pension payments and postal services all over the country. The Company's business profile is assessed by ACRA as strong due to, primarily, a wide diversification of services offered by the Company and a significant share of infrastructure owned by it. The standalone creditworthiness assessment (SCA) is limited by medium profitability, leverage, and cash flow.
The Company is the largest federal postal and logistics operator of Russia, operating in all regions of the country. The Company’s product range includes all types of postal services (delivery of written correspondence and postal items, international postal service, etc.), money transfers, delivery of pension payments, utility payments, and logistics services for online retailers. The Company is wholly owned by the state.
KEY ASSESSMENT Factors
The high degree of support from the state reflects very high scores for 'barriers and restrictions' and 'social role' sub-factors, as well as high scores for 'ownership, control, and regulation', 'exclusivity of functions', and 'propensity/ability to support' sub-factors. The Company's business has no legal, economical or other barriers for any support from the state. The Company is a key player in the postal services sector and is present in all regions of Russia, ensuring the integrity and development of communications throughout the country and providing low-profit services in hard-to-reach areas. A significant amount of pension payments sent via the Company, as well as housing and utility payments, make the Company a systemically important element of the country’s pension and payment systems. The Company is the fourth largest employer in Russia. After corporatization, state influence on the Company has remained high. The Company’s Board of Directors was formed by Resolution of the RF Government dated 11/30/2020 No. 3164-p and largely includes representatives of the state.
Strong business profile assessment. In ACRA's opinion, the Company’s infrastructure quality is medium. However, the Company’s infrastructure allows it to provide a full range of postal and communication services. Almost all the space occupied by post offices, as well as the automobile, air, and railway transport used, is owned by the Company, which significantly reduces its dependence on the current market conditions and rental rate dynamics. ACRA assesses the Company’s highly diversified services as positive. The Company operates throughout the country.
The restrictive measures associated with the COVID-19 pandemic had a negative impact on the Company's international business segment, the revenue from which in 2020 fell to RUB 28.7 bln (-19.9% against 2019). Positive revenue dynamics was observed in the e-commerce segment (+11.5% against 2019), as well as in the postal business and pension payments segment (+ 7.4% against 2019). The total revenue in 2020 amounted to RUB 210.7 bln (+ 2.0% against 2019). The Agency notes an overall decline in the Company's business profitability in 2020 (the return on FFO before fixed charges and taxes was 6.6% in 2020 compared to 7.9% in 2019). ACRA notes that in 2021, revenues from the international business segment have been recovering, which allows the Agency to expect higher revenue growth rates at the end of the current year.
Medium leverage and interest coverage. As of June 30, 2021, the financial debt of the Company amounted to RUB 76.9 bln and included mainly bond loans (82% in the portfolio). Most debt obligations (99%) are denominated in rubles and have fixed interest rates, while the share of floating rate obligations is about 2%. At the end of 2020, the ratio of the Company's adjusted total debt to FFO before fixed charges was 7.6x (5.8x at the end of 2019); the increase in the leverage was caused by a decrease in the overall business profitability, which was due, among other things, to a significant reduction in revenues coming from the international trade segment. For example, some Chinese factories were closed in H1 2020 due to the spread of COVID-19, which led to the loss of a portion of the Company's income from international business last year. Interest coverage is stable. In 2020, the Company reduced the total cost of debt and significantly increased the average time to maturity, but due to the decrease in the total volume of FFO before fixed charges, this did not lead to an upgrade in the score for coverage. The ratio of FFO before fixed charges to fixed charges was 2.2x at the end of 2020 against 2.6x in 2019. ACRA expects a gradual decrease in the leverage and an improvement in the interest coverage by the end of 2021.
High liquidity and medium cash flow. The Agency notes that the upd ated financial policy of the Company adopted in 2020 has a positive effect on its standalone creditworthiness. As of June 30, 2021, RUB 27.2 bln was available to the Company in the form of committed credit lines. The liquidity factor is assessed as high since the Company holds a significant amount of available funds in its accounts. The Company's FCF margin was under pressure in 2020 due to a lower overall profitability, which had a negative impact on the Company's cash flow assessment. The FCF margin (including investments in joint ventures) amounted to -7.61% (-2.75% in 2019). The absence of dividend payouts underpins, to some extent, the cash flow of the Company.
Average annual revenue growth by 3–5% in 2021−2023;
Return on FFO before fixed charges and taxes within 8−10% in 2021−2023;
The Company remaining the state’s only postal operator, including in terms of sending state notifications, fines, and announcements.
possible 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:
Significant decline in the Company's systemic importance for the Russian economy;
Loss of state control over the Company or substantial changes in industry laws;
The weighted ratio of adjusted debt to FFO before fixed charges exceeding 5.0x in combination with a decrease in the weighted ratio of FFO before fixed charges to fixed charges below 2.5x.
Support: State – SCA+5.
Russian Post, BO-001R-04 series (RU000A0ZZ5H3); maturity date: February 24, 2028, issue volume: RUB 5 bln — ААА(RU).
Russian Post, BO-001R-05 series (RU000A0ZZ5J9); maturity date: April 24, 2028, issue volume: RUB 5 bln — ААА(RU).
Russian Post, BО-001R-06 series (ISIN RU000A100SZ3); maturity date: August 23, 2029, issue volume: RUB 5 bln — АAА(RU).
Russian Post, BО-001R-07 series (ISIN RU000A1008Y3); maturity date: March 27, 2029, issue volume: RUB 5 bln — АAА(RU).
Russian Post, BО-001R-08 series (ISIN RU000A100UT2); maturity date: September 11, 2029, issue volume: RUB 5 bln — АAА(RU).
Russian Post, BО-001R-09 series (ISIN RU000A102E52); maturity date: November 13, 2030, issue volume: RUB 5 bln — АAА(RU).
Russian Post, BО-001R-10 series (ISIN RU000A101ZH4); maturity date: July 23, 2030, issue volume: RUB 10 — АAА(RU).
Credit rating rationale. The issues represent senior unsecured debt of Russian Post. Due to the absence of either structural or contractual subordination of the issue, ACRA regards them as equal to other existing and future unsecured and unsubordinated debt obligations of the Company. According to ACRA’s methodology, and taking into account the high creditworthiness of the issuer and the absence of any substantial secured debt obligations, ACRA has applied a simplified approach, under which the issue credit ratings are equivalent to that of the Company, i.e. AAA(RU).
The credit ratings assigned to Russian Post and bonds (RU000A0ZZ5H3, RU000A0ZZ5J9, RU000A100SZ3, RU000A1008Y3, RU000A100UT2, RU000A101ZH4, RU000A102E52) issued by Russian Post were assigned under the national scale for the Russian Federation and is based on the Methodology for Credit Ratings Assignment to Non-Financial Corporations under the National Scale for the Russian Federation, 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. In the process of credit rating assignment to the above issues, the Methodology for Assigning Credit Ratings to Individual Issues of Financial Instruments under the National Scale of the Russian Federation was also applied.
The credit rating assigned to Russian Post was published by ACRA for the first time on April 24, 2018, to bonds (RU000A0ZZ5H3, RU000A0ZZ5J9) on June 4, 2018, to bond (RU000A100SZ3) September 9, 2019, to bond (RU000A1008Y3) on April 10, 2019, to bond (RU000A100UT2) on September 25, 2019, to bond (RU000A101ZH4) on August 4, 2020, and to bond (RU000A102E52) on November 25, 2020. The credit rating assigned to Russian Post and its outlook as well as the credit ratings assigned to bonds (RU000A0ZZ5H3, RU000A0ZZ5J9, RU000A100SZ3, RU000A1008Y3, RU000A100UT2, RU000A101ZH4, RU000A102E52) issued by Russian Post are expected to be revised within one year following the publication date of this press release.
The assigned credit ratings are based on the data provided by Russian Post, information from publicly available sources as well as ACRA’s own databases. The credit ratings are solicited, and Russian Post participated in their assignment.
Disclosure of deviations from the approved methodologies: the 'profitability' factor has been assessed not in line with the assessment range se t forth in the Methodology for Credit Ratings Assignment to Non-Financial Corporations under the National Scale for the Russian Federation, which is caused by the specifics of the postal service business.
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 Russian Post. No conflicts of interest were discovered in the course of credit rating assignment.