Fitch Assigns Russian Railways' Upcoming Notes 'BBB-(EXP)' Rating
16 Feb 2017 9:02 AM
Fitch Ratings-Moscow/London-16 February 2017: Fitch Ratings has assigned RZD Capital P.L.C.'s upcoming potential USD and RUB loan participation notes (LPN) expected senior unsecured 'BBB-(EXP)' ratings.
The final ratings are contingent upon the receipt of final documentation conforming materially to information already received and details regarding the amount, coupon rate and maturity.
KEY RATING DRIVERS
The notes' ratings are in line with JSC Russian Railways' (RZD) Long-Term Issuer Default Rating (IDR) of 'BBB-'/Stable as the notes will be issued on a limited recourse basis for the sole purpose of funding loans by RZD Capital P.L.C. to RZD. Fitch considers that the notes will constitute direct, unconditional and unsecured obligations of RZD and rank pari passu with all its other present and future outstanding unsecured and unsubordinated obligations.
The noteholders will rely solely and exclusively on RZD's credit and financial standing for the payment of obligations under the LPNs. The proceeds of the loans will be used by RZD to refinance existing debt and in the ordinary course of its business.
RZD's ratings are aligned with those of the Russian Federation (BBB-/Stable), reflecting its 100% state ownership, strategic importance to the Russian economy, strong operational links to the state, including tariff and capex approval by the government, and track record of state support.
The Russian Federation continues to provide support to the company in various forms. In 2016 RZD received state subsidies of around RUB52bn, the majority of which related to passenger transportation and direct equity injections of about RUB61bn to fund its key infrastructure projects. During 2013-2015 the company also issued long-dated inflation-linked infrastructure bonds of about RUB297bn in favour of the National Wealth Fund and State Pension Fund to finance its long-term infrastructure projects.
In 2015 RZD issued RUB50bn of preference shares acquired by the state using the National Wealth Fund sources, which envisions dividends of 0.01% over 2015-2019 and 2.98% starting from 2020. RZD plans to issue the remaining RUB100bn preference shares in 2017-2019. The total RUB150bn programme was approved by the government in 2013 to fund infrastructure development in the Far East.
We expect RZD to continue receiving tangible financial support in the medium term, including favourable tax regime and inflation-linked tariff indexation. In 2017 RZD plans to receive subsidies of about RUB45bn and equity injections of around RUB82bn for the development of some large-scale projects, including RUB50bn of preference shares.
Any rating action on RZD's IDR would result in similar rating action on RZD Capital P.L.C.'s LPNs.
For RZD's ratings sensitivities see the rating action commentary "Fitch Affirms JSC Russian Railways at 'BBB-'/Negative" dated 20 May 2016 at www.fitchratings.com.
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Date of Relevant Rating Committee: 19 October 2016
Additional information is available on www.fitchratings.com
Criteria for Rating Non-Financial Corporates (pub. 27 Sep 2016)
National Scale Ratings Criteria (pub. 30 Oct 2013)
Parent and Subsidiary Rating Linkage (pub. 31 Aug 2016)
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