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RAEX (Expert RA) Confirms Aeroexpress’ ruBB+ Rating

Sep 21, 2018

The RAEX (Expert RA) rating company has confirmed the credit rating of the Aeroexpress non-financial company and has assigned it a ruBB+ rating. The outlook is stable.

Aeroexpress is a private carrier providing railway transportation services between the central airports of Moscow and three key airports of the Moscow Air Cluster, including Domodedovo, Sheremetyevo, and Vnukovo. In 1H2018, 5.59 million people travelled on its trains. According to the agency’s calculations, the company holds a 12.8% share of the Moscow Air Cluster’s intermodal transportation market.

The positive passenger traffic dynamics shown by the airports of the Moscow Air Cluster have positively influenced the company’s rating. In 1H2018, air passenger demand at the three key airports of Moscow was down from 18.5% last year to 9.3%. However, the agency considers this high. The significant passenger traffic increase witnessed in 2017 had a one-time nature and was due to economic recovery after the 2014-2015 financial crisis. The agency expects the total number of passengers travelling through Moscow airports to grow 5-6% per annum in the next two years, provided that no exogenous shocks occur. On the flip side, the devaluation of the rouble may cause tourist market stagnation that will impact passenger demand at the airports of the Moscow Air Cluster.

Thanks to the improved fare concept and the provision of free travel services (reimbursed by Moscow administration) to football fans who visited the FIFA World Cup, the number of passengers transported by the company in the first six months of 2018 totalled 5.59 million people, which is 3.3% higher than one year ago. However, given that the market has grown by 9.3%, the company’s market share has dropped from 13.2% in 2017 to 12.8% in 1H2018. Such dynamics, according to the agency, is due to increased competition from taxi and car sharing service providers and also improved road and transport infrastructure in the city. Insufficient measures taken to maintain the competitive advantage and the divergence between planned and actual passenger traffic, with minimal liquidity cushion taken into account, restrains the assessment of the company’s strategic financial security.

In late 2017, the company put into operation eleven double-decker trains produced by Stadler and purchased via leasing. The total lease amount, including interest liabilities for the entire lease agreement validity period, was recorded on the company’s balance sheet when the new trains were put into service. To calculate the financial indicators, the agency separated the principal from the interest and the rolling stock contract value from leasing payments. Therefore, the debt load as of 30.06.2018 (hereinafter referred to as the reporting date), given all the extra costs related to the purchase, equals 21.3 million roubles. The debt/EBITDA ratio and debt repayment in the next 12 months/EBITDA ratio for a period between 30.06.2017 and 30.06.2018 (hereinafter referred to as the reporting period) are 8.5 and 1 respectively. This high debt burden restrains the company’s rating level. The agency also assessed the diversification of Aeroexpress’ liabilities across creditors as poor. This, according to the agency, affects the company’s negotiating capacity in regards to receiving and/or refinancing loans. The main creditor’s stake is 85% of the company’s total liabilities. As of the reporting date, the stress liquidity ratio, computed with the adjusted asset value to liabilities ratio taken into account, amounted to 0.97. The agency also notes the company’s low exposure to currency risks as all its assets and liabilities, as of the reporting date, are denominated in roubles.

The due date for one of the loans is early 2019. Thus, short-term liabilities as of the reporting date are significantly higher and affect the current and absolute liquidity ratios, which amount to 0.19 and 0.57 correspondingly. When estimating the company’s liquidity, the agency considered the principal payments to be due within the next 12 months as short-term liabilities. Before the end of 2018, the company expects to refinance over half of its short-term liabilities and also raise nearly 0.2 million roubles to construct a new terminal at Domodedovo Airport. According to the agency’s calculations, the company will be able to maintain a minimum liquidity balance in the next 18 months from the reporting date. A large portion of lease payments puts pressure upon a liquidity forecast. Moreover, a floating interest rate applied to a part of the loans (including lease liabilities), totalling 87% of the debt portfolio, results in the company’s exposure to the interest-rate risk.

In 1H2018, the company recorded a net loss of 16 million roubles. This negative financial result was caused by a significant increase in depreciation expense, which was due to the new vehicles being recorded on the company’s balance sheet. Decreased net profit led to the deterioration in profitability. In the reporting period, return on assets was down to 3%, compared to 9% last year. Return on equity decreased almost twofold and amounted to 12%. When profitability was assessed, respective ratios were calculated for both the reporting and previous periods, which smoothed the net loss impact in 1H2018. In the near future, the company’s financial results will probably remain negative. In the reporting period, despite the deterioration of non-monetary indicators, EBITDA increased by 5% to 2.5 billion roubles and return on EBITDA reached 41%.

The company ceased publishing its RAS and IFRS financial statements in the public domain, which lowered the assessment of its information transparency. Besides, the lack of a supervising owner may, according to the agency, raise the risk of corporate conflicts.

As of June 30, 2018, according to company’s RAS (Russian Accounting Standards) reporting, Aeroexpress assets stood at RUB 40.8 billion. Its equity totalled 5.6 billion roubles, the company’s income in 1H2018 amounted to 2.9 billion roubles, and its net loss added up to 16 billion roubles.