The credit rating of JSCo “RZD” (hereinafter, RZD, or the Company) is on par with the financial obligations of the Russian Government due to the very high assessment of support from the state and average assessment of dependence on homogeneous risk factors.
RZD is a natural monopoly and one of the largest global railway companies, which owns and operates railway infrastructure, rolling stock and locomotives in Russia. The sole shareholder of the Company is the Russian Federation.
key assessment factors
Relatively stable financial results in 2022. ACRA expects the load on RZD’s networks to decrease by 5% in 2022 compared to 2021. However, this decline of operating results will probably be offset by annual tariff indexation and additional tariff decisions taken in 2022. FFO before interest payments and taxes adjusted by ACRA for 2022 will remain at the same level as last year and amount to RUB 510–530 bln.
The Company’s standalone creditworthiness assessment (SCA) is aa- due to its very strong market position, strong business profile, very strong geographic diversification assessment, and high quality corporate governance. The assessment of the financial risk profile (amid medium leverage and medium debt service coverage) was a constraining factor in determining the SCA, given the Company’s very low free cash flow (FCF) largely due to its large-scale investment program.
As of the end of 2021, the ratio of the Company’s total debt to FFO before net interest payments was 4.2x vs. 5.0x as of the end of 2020. ACRA expects this indicator to remain at the same level as last year in 2022, and then begin gradually declining. The Company’s coverage indicator (ratio of FFO before interest payments to interest payments) was 4.6x in 2021 and 4.1x in 2020. ACRA estimates that this indicator will temporarily fall to 4.2–4.4x in 2022 as a result of interest rate volatility.
The Company continues to generate negative FCF because of its large-scale investment program. ACRA assumes that RZD’s FCF will remain negative until 2024. The weighted ratio of capital expenditures to revenues for 2019 to 2024 will be 25.9%. The Agency notes that the Company possesses certain flexibility in implementing its capital development program, including thanks to state funding for projects initiated by the state.
ACRA assesses the Company’s liquidity as very strong. The Company maintains a consistently high volume of funds in its accounts (around RUB 107 bln as of December 31, 2021), while available undrawn credit lines amount to more than RUB 1 tln. These funds are more than sufficient to refinance debt in the short term and the long term.
The very high assessment of support from the state stems from the very high assessments of sub-factors such as Barriers and Limitations, Exclusiveness of Implemented Functions, and Ownership, Control and Regulation, as well as a high assessment of the sub-factor Role in the Economy and Reputational Risks. At the same time, the support sub-factors Social Role and Guarantees or Other Support Channels received medium scores.
The Company’s activity does not involve any legal, economic or other barriers that prevent the state from providing support. The Company is a natural monopoly, the exclusiveness of which is based on, among other things, the fact that it owns and operates the entire federal public railway network, as well as the country’s largest operator of locomotives. The Company is an inseparable part of the national economy and is strategically important to the state. The Company’s tariff policy, which is approved by the Russian Government, is a decisive factor for many sectors of the economy. The main reason for this is the Company’s monopoly position and the lack of alternative transportation options for many types of goods. In addition, the cost of transportation accounts for a significant part of the cost of a number of goods. The state’s influence is very high due to its operational and shareholder control, provision of state support in the form of subsidies, and partial financing of its investment program related to the government’s strategic projects, including through the National Welfare Fund and tax benefits.
key assumptions
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Total amount of annual state support, including subsidies and contributions to charter capital, at not less than RUB 50 bln;
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Implementation of the capital investment program will not lead to a breach of the restrictions imposed by the financial strategy (net debt to EBITDA ratio of no higher than 3.0x) in the long term;
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Balanced dividend policy that takes into account market conditions, high capital expenditures, and the need to maintain moderate leverage;
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No significant annual dividend payments over the forecast horizon.
potential outlook or rating change factors
The Stable outlook assumes that the rating will highly likely stay unchanged within the 12 to 18-month horizon.
A negative rating action may be prompted by:
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Loss of shareholder control by the state or a substantial decrease of the volume of financial support;
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Significant decline of the Company’s systemic importance to the Russian economy due to the restructuring of the Company.
rating components
SCA: aa-.
Support: on par with the RF.
issue ratings
Key issue properties of senior unsecured debt
Rationale. The issues listed below represent senior unsecured debt of the Company. Due to the absence of either structural or contractual subordination of the issues, ACRA ranks them as pari passu to other existing and future unsecured and unsubordinated debt obligations of the Company. In accordance with ACRA’s methodology, and taking into account the high creditworthiness and moderate leverage of the issuer, as well as the absence of secured debt obligations, the Agency rates the bond issues AAA(RU), on par with the credit rating of RZD.
1) Uncertificated non-convertible exchange-traded interest-bearing bond subject to centralized title registration issued by JSCo “RZD”, 001P-23R series (RU000A103EN3), maturity date: July 10, 2028, issue volume: RUB 15 bln — AAA(RU).
2) Uncertificated non-convertible exchange-traded interest-bearing bond subject to centralized title registration issued by JSCo “RZD”, 001P-22R series (RU000A102R40), maturity date: July 5, 2027, issue volume: RUB 10 bln — AAA(RU).
3) Uncertificated non-convertible exchange-traded interest-bearing bond subject to centralized title registration issued by JSCo “RZD”, 001P-21R series (RU000A102QP4), maturity date: June 11, 2027, issue volume: RUB 20 bln — AAA(RU).
4) Certificated interest-bearing non-convertible bond issued by JSCo “RZD”, series 19 (RU000A0JQ7Z2), maturity date: July 8, 2024, issue volume:
RUB 10 bln — АAА(RU).
5) Certificated interest-bearing non-convertible bond issued by JSCo “RZD”, series 23 (RU000A0JQRD9), maturity date: January 16, 2025, issue volume: RUB 15 bln — АAА(RU).
6) Certificated interest-bearing non-convertible bond issued by JSCo “RZD”, series 32 (RU000A0JSGV0), maturity date: June 25, 2032, issue volume:
RUB 10 bln — АAА(RU).
7) Certificated interest-bearing non-convertible bond issued by JSCo “RZD”, series 28 (RU000A0JTU85), maturity date: March 21, 2028, issue volume: RUB 20 bln — АAА(RU).
8) Certificated interest-bearing non-convertible bond issued by JSCo “RZD”, series 30 (RU000A0JUAH8), maturity date: November 7, 2028, issue volume: RUB 15 bln — АAА(RU).
9) Certificated interest-bearing non-convertible bond issued by JSCo “RZD”, series 33 (RU000A0JVB19), maturity date: February 28, 2040, issue volume: RUB 15 bln — АAА(RU).
10) Certificated interest-bearing non-convertible bond issued by JSCo “RZD”, series 34 (RU000A0JVB27), maturity date: February 28, 2040, issue volume: RUB 15 bln — АAА(RU).
11) Certificated interest-bearing non-convertible bond issued by JSCo “RZD”, series 35 (RU000A0JVKH5), maturity date: May 30, 2040, issue volume: RUB 15 bln — АAА(RU).
12) Certificated interest-bearing non-convertible bond issued by JSCo “RZD”, series 36 (RU000A0JVY04), maturity date: October 15, 2040, issue volume: RUB 15.2 bln — АAА(RU).
13) Certificated interest-bearing non-convertible bond issued by JSCo “RZD”, series 41 (RU000A0JX1S1), maturity date: November 27, 2031, issue volume: RUB 15 bln — АAА(RU).
14) Certificated interest-bearing non-convertible bond issued by JSCo “RZD”, series 42 (RU000A0JWLU4), maturity date: May 22, 2046, issue volume: RUB 15 bln — АAА(RU).
15) Certificated exchange-traded interest-bearing non-convertible bond issued by JSCo “RZD”, series BO-18 (RU000A0JTY57), maturity date: April 29, 2043, issue volume: RUB 25 bln — АAА(RU).
16) Certificated exchange-traded interest-bearing non-convertible bond issued by JSCo “RZD”, series BO-09 (RU000A0JTZM7), maturity date: June 8, 2028, issue volume: RUB 25 bln — АAА(RU).
17) Certificated exchange-traded interest-bearing non-convertible bond issued by JSCo “RZD”, series BO-12 (RU000A0JU542), maturity date: August 18, 2033, issue volume: RUB 25 bln — АAА(RU).
18) Certificated exchange-traded interest-bearing non-convertible bond issued by JSCo “RZD”, series BO-13 (RU000A0JU7B7), maturity date: September 19, 2033, issue volume: RUB 25 bln — АAА(RU).
19) Certificated exchange-traded interest-bearing non-convertible bond issued by JSCo “RZD”, series BO-15 (RU000A0JU9M0), maturity date: October 11, 2038, issue volume: RUB 25 bln — АAА(RU).
20) Certificated exchange-traded interest-bearing non-convertible bond issued by JSCo “RZD”, series BO-10 (RU000A0JUCG6), maturity date: November 29, 2028, issue volume: RUB 25 bln — АAА(RU).
21) Certificated exchange-traded interest-bearing non-convertible bond issued by JSCo “RZD”, series BO-19 (RU000A0JUPZ8), maturity date: May 20, 2044, issue volume: RUB 25 bln — АAА(RU).
22) Certificated exchange-traded interest-bearing non-convertible bond issued by JSCo “RZD”, series BO-16 (RU000A0JUX71), maturity date: September 20, 2039, issue volume: RUB 25 bln — АAА(RU).
23) Certificated exchange-traded interest-bearing non-convertible bond issued by JSCo “RZD”, series BO-14 (RU000A0JVJS4), maturity date: May 29, 2035, issue volume: RUB 17 bln — АAА(RU).
24) Certificated exchange-traded interest-bearing non-convertible bond issued by JSCo “RZD”, series BO-02 (RU000A0JVW71), maturity date: October 16, 2025, issue volume: RUB 15 bln — АAА(RU).
25) Certificated exchange-traded interest-bearing non-convertible bond issued by JSCo “RZD”, series BO-07 (RU000A0JWC82), maturity date: March 25, 2026, issue volume: RUB 20 bln — АAА(RU).
26) Certificated exchange-traded interest-bearing non-convertible bond issued by JSCo “RZD”, series BO-05 (RU000A0JWD57), maturity date: April 3, 2026, issue volume: RUB 10 bln — АAА(RU).
27) Certificated exchange-traded interest-bearing non-convertible bond issued by JSCo “RZD”, series BO-17 (RU000A0JWHU2), maturity date: April 26, 2041, issue volume: RUB 15 bln — АAА(RU).
28) Certificated exchange-traded interest-bearing non-convertible bond issued by JSCo “RZD”, series BO-11 (RU000A0JXJK7), maturity date: February 4, 2032, issue volume: RUB 15 bln — АAА(RU).
29) Certificated exchange-traded interest-bearing non-convertible bond issued by JSCo “RZD”, series 001Р-01R (RU000A0JXN05), maturity date: May 18, 2032, issue volume: RUB 15 bln — АAА(RU).
30) Certificated exchange-traded interest-bearing non-convertible bond issued by JSCo “RZD”, series 001P-02R (RU000A0JXQ44), maturity date: April 2, 2037, issue volume: RUB 15 bln — АAА(RU).
31) Certificated exchange-traded interest-bearing non-convertible bond issued by JSCo “RZD”, series 001P-03R (RU000A0JXR84), maturity date: April 23, 2037, issue volume: RUB 15 bln — АAА(RU).
32) Certificated exchange-traded interest-bearing non-convertible bond issued by JSCo “RZD”, series 001P-04R (RU000A0JXZB2), maturity date: July 29, 2032, issue volume: RUB 15 bln — АAА(RU).
33) Certificated exchange-traded interest-bearing non-convertible bond issued by JSCo “RZD”, series 001P-09R (RU000A0ZZRY2), maturity date: October 14, 2033, issue volume: RUB 10 bln — АAА(RU).
34) Certificated exchange-traded interest-bearing non-convertible bond issued by JSCo “RZD”, series 001P-08R (RU000A0ZZGT5), maturity date: August 3, 2028, issue volume: RUB 10 bln — АAА(RU).
35) Certificated exchange-traded interest-bearing non-convertible bond issued by JSCo “RZD”, series 001P-07R (RU000A0ZZ9R4), maturity date: May 26, 2033, issue volume: RUB 10 bln — АAА(RU).
36) Certificated exchange-traded interest-bearing non-convertible bond issued by JSCo “RZD”, series 001P-06R (RU000A0ZZ4P9), maturity date: April 4, 2033, issue volume: RUB 15 bln — АAА(RU).
37) Certificated exchange-traded interest-bearing non-convertible bond issued by JSCo “RZD”, series 001P-05R (RU000A0ZYU05), maturity date: February 1, 2033, issue volume: RUB 20 bln — АAА(RU).
38) Certificated exchange-traded interest-bearing non-convertible bond subject to mandatory centralized custody issued by JSCo “RZD”, series 001P-12R (RU000A1002C2), maturity date: January 26, 2024, issue volume: RUB 15 bln — АAА(RU).
39) Certificated exchange-traded interest-bearing non-convertible bond subject to mandatory centralized custody issued by JSCo “RZD”, series 001P-13R (RU000A1007Z2), maturity date: March 19, 2029, issue volume: RUB 20 bln — АAА(RU).
40) Certificated exchange-traded interest-bearing non-convertible bond subject to mandatory centralized custody issued by JSCo “RZD”, series 001P-14R (RU000A1008D7), maturity date: May 4, 2029, issue volume: RUB 11 bln — АAА(RU).
41) Certificated exchange-traded interest-bearing non-convertible bond subject to mandatory centralized custody issued by JSCo “RZD”, series 001P-15R (RU000A1009L8), maturity date: April 7, 2027, issue volume: RUB 15 bln — АAА(RU).
42) Certificated exchange-traded interest-bearing non-convertible bond subject to mandatory centralized custody issued by JSCo “RZD”, series 001P-16R (RU000A100HY9), maturity date: June 25, 2026, issue volume: RUB 30 bln — АAА(RU).
43) Certificated exchange-traded interest-bearing bond issued by JSCo “RZD”, series 001P-17R (RU000A1010M4), maturity date: November 3, 2025, issue volume: RUB 15 bln — АAА(RU).
44) Certificated exchange-traded interest-bearing bond issued by JSCo “RZD”, series 001P-18R (RU000A101H84), maturity date: February 20, 2030, issue volume: RUB 15 bln — АAА(RU).
45) Uncertificated exchange-traded interest-bearing non-convertible bond subject to centralized custody issued by JSCo “RZD”, series 001P-19R (RU000A101LS1), maturity date: April 15, 2027, issue volume: RUB 10 bln — АAА(RU).
46) Uncertificated interest-bearing non-convertible bond subject to centralized custody issued by JSCo “RZD”, series 001P-20R (RU000A101M04), maturity date: March 15, 2027, issue volume: RUB 15 bln — АAА(RU).
47) Uncertificated non-convertible interest-bearing bond subject to centralized title registration issued by JSCo “RZD”, series 001P-24R (RU000A104SX0), maturity date: April 30, 2027, issue volume: RUB 10 bln — АAА(RU).
48) Uncertificated non-convertible interest-bearing bond subject to centralized title registration issued by JSCo “RZD”, series 001P-25R (RU000A104SY8), maturity date: April 30, 2027, issue volume: RUB 15 bln — АAА(RU).
Key issue properties of unsecured perpetual bonds (with the option of redemption at the issuer’s discretion)
Rationale. The terms of the issues listed below provide that the Company may decide not to pay any coupon, without any liability for such non-payment. Taking into account the subordination of the rated issues in relation to the senior unsecured debt of the issuer, which has an ACRA rating of AAA(RU), as well as the factor of full compensation to investors for lost income (in accordance with Resolution of the Government of the Russian Federation No. 1380 dated August 9, 2020) if JSCo “RZD” decides not to pay the coupon, the issues below have been assigned a rating one notch below the issuer’s rating — AA+(RU).
49) Perpetual callable uncertificated non-convertible interest-bearing bond issued by JSCo “RZD” subject to centralized title registration, series 001B-08 (RU000A102S72), issue volume: RUB 24 bln — АА+(RU).
50) Perpetual callable uncertificated non-convertible interest-bearing bond issued by JSCo “RZD” subject to centralized title registration, series 001B-07 (RU000A102GA7), issue volume: RUB 10 bln — АА+(RU).
51) Perpetual callable uncertificated non-convertible interest-bearing bond issued by JSCo “RZD” subject to centralized title registration, series 001B-06 (RU000A102FE1), issue volume: RUB 40 bln — АА+(RU).
52) Perpetual callable uncertificated non-convertible interest-bearing bond issued by JSCo “RZD” subject to centralized title registration, series 001B-05 (RU000A102E37), issue volume: RUB 33 bln — АА+(RU).
53) Perpetual callable uncertificated non-convertible interest-bearing bond issued by JSCo “RZD” subject to centralized title registration, series 001B-01 (RU000A101TT2), issue volume: RUB 30 bln — АА+(RU).
54) Perpetual callable uncertificated non-convertible interest-bearing bond issued by JSCo “RZD” subject to centralized title registration, series 001B-02 (RU000A101Y18), issue volume: RUB 20 bln — АА+(RU).
55) Perpetual callable uncertificated non-convertible interest-bearing bond issued by JSCo “RZD” subject to centralized title registration, series 001B-03 (RU000A102564), issue volume: RUB 100 bln — АА+(RU).
56) Perpetual callable uncertificated non-convertible interest-bearing bond issued by JSCo “RZD” subject to centralized title registration, series 001B-04 (RU000A1028U9), issue volume: RUB 80 bln — АА+(RU).
REGULATORY DISCLOSURE
The credit ratings have been assigned to JSCo “RZD” and the bond issues of JSCo “RZD” 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, 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 Methodology for Assigning Credit Ratings to Financial Instruments under the National Scale for the Russian Federation was also applied to assign credit ratings to the bond issues.
The credit rating of JSCo “RZD” and the credit ratings of the bonds issued by JSCo “RZD” (ISIN RU000A0JQ7Z2, ISIN RU000A0JQRD9, ISIN RU000A0JSGV0, ISIN RU000A0JTU85, ISIN RU000A0JTY57, ISIN RU000A0JTZM7, ISIN RU000A0JU542, ISIN RU000A0JU7B7, ISIN RU000A0JU9M0, ISIN RU000A0JUAH8, ISIN RU000A0JUCG6, ISIN RU000A0JUPZ8, ISIN RU000A0JUX71, ISIN RU000A0JVB19, ISIN RU000A0JVB27, ISIN RU000A0JVJS4, ISIN RU000A0JVKH5, ISIN RU000A0JVW71, ISIN RU000A0JVY04, ISIN RU000A0JWC82, ISIN RU000A0JWD57, ISIN RU000A0JWHU2, ISIN RU000A0JWLU4, ISIN RU000A0JX1S1, ISIN RU000A0JXJK7, ISIN RU000A0JXN05, ISIN RU000A0JXQ44, ISIN RU000A0JXR84, ISIN RU000A0JXZB2) were published by ACRA for the first time on November 16, 2017. The credit ratings of the bonds (ISIN RU000A0ZZRY2, ISIN RU000A0ZZGT5, ISIN RU000A0ZZ9R4, ISIN RU000A0ZZ4P9, ISIN RU000A0ZYU05, ISIN RU000A1002C2, ISIN RU000A1007Z2, ISIN RU000A1008D7, ISIN RU000A1009L8, ISIN RU000A100HY9, ISIN RU000A1010M4, ISIN RU000A101H84, ISIN RU000A101LS1, ISIN RU000A101M04, ISIN RU000A101TT2, ISIN RU000A101Y18, ISIN RU000A102564, ISIN RU000A1028U9, ISIN RU000A102E37, ISIN RU000A102FE1, ISIN RU000A102GA7, ISIN RU000A102QP4, ISIN RU000A102R40, ISIN RU000A102S72, ISIN RU000A103EN3, ISIN RU000A104SX0, ISIN RU000A104SY8) were published by ACRA for the first time on November 2, 2018, August 16, 2018, June 14, 2018, April 23, 2018, February 19, 2018, February 1, 2019, April 1, 2019, April 4, 2019, April 17, 2019, July 4, 2019, November 11, 2019, March 4, 2020, April 23, 2020, April 24, 2020, June 26, 2020, July 31, 2020, September 30, 2020, October 22, 2020, November 30, 2020, December 3, 2020, December 10, 2020, February 8, 2021, February 12, 2021, February 25, 2021, July 19, 2021, May 6, 2022, and May 6, 2022, respectively.
The credit rating of JSCo “RZD” and its outlook and the credit ratings of the bonds issued by JSCo “RZD” are expected to be revised within one year following the publication date of this press release.
The credit ratings were assigned based on data provided by JSCo “RZD”, information from publicly available sources, and ACRA’s own databases. The credit ratings were assigned based on the consolidated IFRS financial statements of JSCo “RZD”. The credit ratings are solicited and JSCo “RZD” participated in their assignment.
In assigning the credit ratings, ACRA used only information, the quality and reliability of which were, in ACRA’s opinion, appropriate and sufficient to apply the methodologies.
ACRA provided additional services to JSCo “RZD”. No conflicts of interest were discovered in the course of credit rating assignment.
