ACRA publishes Draft methodology for assigning credit ratings to project finance

ACRA has published a draft version of its Russian National Scale Methodology for Assigning Credit Ratings to Project Finance Issuers, Instruments, and Obligations. The draft methodology presents ( ACRA’s assessment principles and approach to assigning credit ratings under the national scale to both project finance transactions (PFTs) exposed to market risks and projects in which such risks to varying degrees fall on the state (public partner). In its rating assignment process, ACRA uses a quantitative and qualitative analysis of more than 200 primary rating factors that, according to the Agency, determine the credit quality of the rated debt both at the project’s construction phase as well as at its operational phase.

The credit ratings that ACRA assigns as part of PFTs are based on assessing expected losses. This approach takes into consideration both the probability of default and the severity of losses posed to investors upon default on the rated debt prior to its legal final maturity.

“Assigning ratings to project finance instruments can provide significant momentum to the expansion of Russia’s infrastructure sector, which is a key driver of economic development,” said ACRA CEO Igor Zelezetskii.

Russia has initiated a wide-reaching infrastructure creation program, which runs for six years and involves around RUB 6.35 tln in funding. Only 48% of this amount will be covered by public contracts and subsidies, while 25% will come from projects that can potentially be carried out as PPPs, 17% from actual concessions and PPPs, and 6% from long-term investment agreements. Private projects will contribute the remaining 4%. This means that more than half of these funds – around RUB 3.3 tln – will be raised through investment. ACRA believes that this will have a positive impact on the development of the private sector while lightening the burden on the federal budget.

Ratings assigned following in-depth analysis of each infrastructure project allow investors to confidently select optimum areas for investment that take risk appetite into account. Consequently, infrastructure projects will attract a wider group of investors depending on their goals. Mr. Zelezetskii added that ACRA’s methodology makes it possible to analyze PFTs in a very broad range of sectors, including transport and social infrastructure projects (roads, bridges, airports, hospitals, schools), as well as projects in the energy sector, including renewable energy sources, and solid waste processing.

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