ACRA assigns AA+(RU) to 001B-02 series (RU000A101Y18) perpetual bond issued by JSCo “RZD”

Credit rating rationale. The issue represents unsecured perpetual debt of Joint Stock Company “Russian Railways” (hereinafter, the Company, RZD). The terms of the issue provide that the Company may decide not to pay any coupon, without any liability for such non-payment. In case such a decision is made, investors will be compensated by the Ministry of Finance of the Russian Federation in accordance with Order of the Government of the Russian Federation No. 1260-р dated May 13, 2020. By the rating assignment date, no procedure, terms, deadlines or other details of such compensation have been formalized.

In accordance with ACRA’s methodology, if a borrower's default on any financial obligations having debt characteristics does not lead to a default of a rated entity, the final rating of such financial obligations is to be set five notches below SCA. However, taking into account the compensation of unearned income guaranteed to investors by the Ministry of Finance of the Russian Federation, the credit rating of the issue is AA+(RU), i. e. one notch below the issuer’s rating.

The credit rating of the issue can be changed after the publication of the final clarification of the compensation mechanism for lost income by the Ministry of Finance of the Russian Federation, provided that RZD decides not to pay another coupon.

The credit rating of RZD is on par with that of the financial obligations of the Russian Government in view of very high systemic importance of the Company for the Russian economy, and very high influence of the state on the Company.

The Company is a natural monopoly, one of the world's largest railway companies, which owns and operates railway infrastructure and locomotives in Russia. As of December 31, 2019, the Company’s consolidated IFRS revenue amounted to nearly RUB 2,508 bln, up by 4% compared with a year earlier. The sole shareholder of the Company is the Russian Federation.

The issue will not have a significant impact on the Company's leverage and coverage metrics. Despite RZD's significant needs for cash to fund its capital development program (about RUB 1.8 trln in the period from 2020 to 2022), ACRA does not expect an increase in the Company's leverage. The Company's liquidity is assessed by ACRA as very strong, the amount payable by end-2020 is about RUB 195 bln, and the volume of available credit lines exceeds RUB 850 bln.

Key issue properties

Borrower

Joint Stock Company “Russian Railways”

Issuer’s credit rating

AAA(RU), outlook Stable

Actual issuer

Joint Stock Company “Russian Railways”

Type of security

Perpetual callable uncertified non-convertible interest-bearing bond subject to centralized title registration, 001B-02 series

Issue volume

RUB 20 bln

ISIN

RU000A101Y18

Placement start date

July 31, 2020

Maturity date

Perpetual

 

Regulatory disclosure

The credit rating has been assigned under the national scale for the Russian Federation based on the Methodology for Assigning Credit Ratings to Individual Issues of Financial Instruments under the National Scale of the Russian Federation, and the Key Concepts Used by the Analytical Credit Rating Agency within the Scope of Its Rating Activities.

The credit rating has been assigned to 001B-02 series (RU000A101Y18) bond issued by Joint Stock Company “Russian Railways” for the first time. The credit rating is expected to be revised within one year following the publication date of this press release.

The credit rating is based on the data provided by Joint Stock Company “Russian Railways”, information from publicly available sources, as well as ACRA’s own databases. The credit rating is solicited, and Joint Stock Company “Russian Railways” participated in its assignment.

Disclosure of deviations from methodology: regardless of the structural subordination of the rated instrument to the senior unsecured debt of the issuer rated AAA(RU), ACRA applied a simplified approach without any adjustment for loss given default. Moreover, the obligation of the Ministry of Finance of Russia to compensate investors for unearned income in case Joint Stock Company “Russian Railways” takes a decision not to pay coupon was taken into account.

No material discrepancies between the provided data and the data officially disclosed by Joint Stock Company “Russian Railways” in its financial statements have been discovered.

ACRA provided additional services to Joint Stock Company “Russian Railways”. No conflicts of interest were discovered in the course of credit rating assignment.

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