Aug 8, 2019 - Expert RA Confirms Aeroexpress’ ruBB+ Rating

Expert RA Confirms Aeroexpress’ ruBB+ Rating

Aug 8, 2019

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

Aeroexpress is a private carrier providing railway transportation services between the central rail terminals of Moscow and three key airports of the Moscow Air Cluster, including Domodedovo, Sheremetyevo, and Vnukovo. In 2018, 12.1 million people travelled by company’s trains. According to the agency’s calculations, the company holds a 12.5% share of the Moscow Air Cluster’s intermodal transportation market.

The rating level was favourably influenced by a positive forecast for industry development. After an all-time high growth of 16% in 2017, passenger traffic for MAC airports increased by 9% in 2018, amounting to 96.2 million people. According to the agency, the key drivers of rapid market development have reached their limits and, in the short term, growth rates for passenger demand will continue to decline but will remain positive, provided that no exogenous shocks occur. As before, the rouble’s devaluation will be the main cause for tourist market stagnation, which, in its turn, will have an impact on passenger demand at MAC airports.

Increased competition from taxis and car sharing service providers and also improved road and transport infrastructure in Moscow and Moscow Region has put pressure on Aeroexpress. In 2018, the company’s market share decreased from 13.2% the previous year to 12.5%. In order to improve its competition position against the background of a reduced average taxi receipt amount, the company introduced an updated range of fares designed for passengers travelling in groups of two and more. Moreover, the company put additional stops into operation and is currently testing a few projects that will help to improve the quality of provided services. If all the measures taken by the company are successful, the company will probably be able to maintain passenger traffic at last year’s level or even slightly increase it.

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 separates the principal from the interest and the rolling stock contract value from leasing payments. Therefore, according to the agency’s calculations, the debt load as of 31.03.2019 (hereinafter referred to as the reporting date), given all the extra costs related to the purchase and leasing payments already made by the company, equals 15.3 billion roubles. The debt/EBITDA ratio and debt repayment in the next 12 months/EBITDA ratio for a period between 31.03.2018 and 31.03.2019 (hereinafter referred to as the reporting period) are 5.8 and 1.1 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 84% of 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 0.98. 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.

Current assets and short-term liabilities remain almost the same since the last rating action, which is why the absolute and current liquidity ratios remained at the same level of 0.2 and 0.6, respectively. When estimating the company’s liquidity, the agency considered the principal payments to be due within the next 12 months as short-term liabilities. 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.

Given the significant increase in depreciation/amortization costs due to new vehicles being recorded on the company’s balance sheet, the adjusted net profit for the reporting period fell by 800 million roubles compared to the same period last year, totalling 170 million roubles. This led to deterioration in profitability. Thus, return on assets for the reporting period was down to 0.4% and return on equity amounted to 3%. In the reporting period, despite the deterioration of non-monetary indicators, EBITDA increased by 4% to 2.6 billion roubles and return on EBITDA reached 43%.

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 March 31, 2019, according to company’s RAS (Russian Accounting Standards) reporting, Aeroexpress assets stood at RUB 41.2 billion. Its equity totalled 5.9 billion roubles, the company’s income in 1H2019 amounted to 1.2 billion roubles, and its net loss added up to 47 million roubles.

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