The credit rating of Rosseti Lenenergo PJSC (hereinafter Rosseti Lenenergo, or the Company) is based on the strong market positions of the Company in the regions of its operation, moderately strong operating profile, high business profitability, low leverage, and strong liquidity. ACRA assesses that it is highly likely that PJSC ROSSETI (ACRA rating: AAA(RU), outlook Stable; hereinafter, Rosseti, the Holding) will provide extraordinary support if necessary.
ACRA expects that the Company's key indicators will be somewhat impaired in 2023 against 2022 due to a decrease in the supply of electricity caused by an economic slowdown in the serviced regions on the back of sanctions. To maintain financial and technical stability, the Company is seeking ways both to optimize capital expenses and to replace sanctioned spare parts and equipment with available alternatives. ACRA expects that, at least until the end of 2023, the Company will be able to maintain operational stability and ensure the reliability of the regional energy system.
Rosseti Lenenergo is a regional electric grid company operating in St. Petersburg and the Leningrad Region.
Key assessment factors
High likelihood of extraordinary support from PJSC ROSSETI. Rosseti Lenenergo is an infrastructure monopoly that transmits electric power in St. Petersburg, Russia’s second largest economic center. It is a key region for the Holding that performs quasi-public energy supply functions. Being a part of Rosseti, the Company is integrated in the single treasury system and the mechanism for providing operating liquidity to subsidiaries (in the form of loans or bonds).
Infrastructure monopoly with moderate sales risk. Rosseti Lenenergo occupies a dominant position in the electricity transmission market within the boundaries of interconnected networks in St. Petersburg and the Leningrad Region. Based on tariff and balance decisions, the Company’s market share in terms of tariff revenue was about 88%. The share of overdue receivables is low at 2.9% of revenues for 2022.
Moderately strong operating profile. In 2011–2020, tariff regulating authorities applied to the Company a special tariff leveling procedure where gross revenue requirement was redistributed through years. Funds taken from the gross revenue requirement were returned to the Company in subsequent years of the long-term regulatory period. Today, the regulatory risk facing the Company is lower than before because in the period of 2021–2025, such procedure will not be applied. Increased indexation for the Company is mostly associated with Rosseti Lenenergo’s very high investment commitments, as it has one of the highest investment to revenue ratios (33%).
ACRA assesses the Company’s corporate governance as adequate and in line with industry standards. The Company’s risk management system minimizes all the major types of risk and Rosseti’s control includes approval of the credit policy and the rules for placement of funds, which are unified within the group, as well as compliance at the level of the Company's management bodies.
ACRA notes that Rosseti’s control over the Company substantially toughened after 2015. The Company’s financial transparency is high.
Positive free cash flow. In 2022, the Company’s FCF was positive at RUB 12.3 bln (RUB 2 bln in 2021). This was mainly the result of an increase in the operating cash flow after the removal of pandemic restrictions. Therefore, ACRA expects the Company’s FCF to remain positive in 2023 and thereafter.
The Company’s FFO before interest and tax margin remained high at 51% in 2022 (46% in 2021). ACRA expects the margin to remain near this level in 2023–2025.
Low leverage. As of March 28, 2023, the Company’s debt portfolio amounted to RUB 20.6 bln. About RUB 9 bln is to be repaid this year, while the remaining portion of the debt portfolio is made up of long-term ruble-denominated bank loans and fixed rate bonds. As of December 31, 2022, the ratio of total debt, including pension obligations, to FFO before net interest was 0.7x (0.8x a year ago). ACRA expects that this ratio will continue to decline gradually.
The Company’s liquidity position is strong due to the volume of funds held in the Company's accounts and deposits totaling RUB 15.2 bln as of March 28, 2023, as well as a significant amount of available credit lines many times exceeding the Company’s total debt.
Key assumptions
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Corporate capital investment program implemented in full and on time.
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ACRA assumes that dividend payments will not exceed 50% of IFRS or RAS net profits (whichever is higher), taking into account the actual utilization of depreciation provisions for investment purposes.
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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Rosseti’s loss of control or looser integration between the Company and Rosseti;
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Total debt growing above 2.0x of FFO before net interest amid deteriorating debt structure or interest coverage going below 10.0x;
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FFO before interest and tax margin going below 25% at the same time as interest coverage going below 5.0x;
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Substantially reduced access to external sources of liquidity.
Rating components
Standalone Creditworthiness Assessment (SCA): aa-.
Support: Group.
Issue ratings
Rosseti Lenenergo PJSC bonds (RU000A101DE8), maturity date: January 23, 2030, date of planned early redemption: January 29, 2025, issue volume: RUB 5 bln — AAA(RU).
Rosseti Lenenergo PJSC bonds (RU000A101DF5), maturity date: January 23, 2030, date of planned early redemption: January 29, 2025, issue volume: RUB 5 bln — AAA(RU).
Credit rating rationale. The issues represent senior unsecured debt of the Company. Due to the absence of either structural or contractual subordination of the issues, ACRA regards them as pari passu with other existing and future unsecured and unsubordinated debt obligations of the Company. According to ACRA’s methodology, on the basis of the simplified approach, the credit ratings of the bond issues are equivalent to that of the Company — AAA(RU).
Regulatory disclosure
The credit ratings 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 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 the credit rating to the bond issues.
The credit rating of Rosseti Lenenergo PJSC was published by ACRA for the first time on April 11, 2018. The credit ratings of the bond issues (RU000A101DE8, RU000A101DF5) were first published on February 5, 2020. The credit rating of Rosseti Lenenergo PJSC and its outlook, as well as the credit ratings of the bonds issued by Rosseti Lenenergo PJSC (RU000A101DE8, RU000A101DF5) 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 Rosseti Lenenergo PJSC, information from publicly available sources, and ACRA’s own databases. The credit ratings are solicited, and Rosseti Lenenergo PJSC 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 additional services to Rosseti Lenenergo PJSC. No conflicts of interest were identified in the course of credit rating assignment.
