January 24, 2008 | Cbonds
| Standard & Poor's Ratings Services said yesterday that it affirmed its 'BBB+' long-term corporate credit and 'ruAAA' Russia national scale ratings on Russian Railways (JSC) (RZD), the railroad company 100% owned by the Russian Federation (foreign currency BBB+/Stable/A-2; local currency A-/Stable/A-2; Russia national scale 'ruAAA'). The outlook is stable.|
"The ratings reflect our expectation of strong financial support from the state and the company's monopoly status as national railroad infrastructure operator," said Standard & Poor's credit analyst Eugene Korovin. "RZD's domination of the national railroad market, a still strong financial profile--with commitment to a moderate financial policy--and the strong competitiveness of railroads in Russia also support the rating."
These strengths are offset by RZD's exposure to Russia's still-transitional economy, growing railroad industry competition, restructuring risk from the ongoing railway reform, low tariff regulation transparency, exposure to commodities traffic, and a large medium-term investment program.
At June 30, 2007, RZD had RUR 180 billion in total debt.
"We expect RZD to retain its strategic importance to the Russian government and continue to benefit from increasing government support," said Mr. Korovin.
This should mitigate the negative impact of the aggressive investment plan on RZD's credit quality.
Should the expected increased financial support from the government to finance the large investment plan for the rail sector not occur as expected, the ratings will come under pressure.
We also expect RZD to retain the benefits of the vertical integration of its infrastructure and freight carrier operations.
We expect RZD's financial profile to weaken in the medium term, but to remain consistent with a low investment-grade rating.
We expect RZD to take effective steps regarding its objective to reduce its stake in TransCreditBank to less than 50% by 2009. A change in RZD's strategy regarding the sell down of ownership in the bank will increase the company's overall financial risk and may pressure the ratings.
A change in the sovereign ratings would not automatically result in a change in the rating on RZD.
A substantial improvement in RZD's stand-alone credit quality or an improvement in the credit worthiness of the Russian government, together with continued strong support, could create upside potential for the rating.
|Full company name||Russian Railways|
|Country of risk||Russia|
|Country of registration||Russia|