Fitch Affirms Russia's Freight One at 'BB+'; Negative Outlook
July 18, 2012 Fitch Ratings
Fitch Ratings-London/Moscow-17 July 2012: Fitch Ratings has affirmed Russia-based OJSC Freight One's (Freight One) Long-term foreign and local currency Issuer Default Ratings (IDR) at 'BB+', Short-term foreign and local currency IDRs at 'B' and National Long-term rating at 'AA(rus)'. The Long-term ratings have been taken off Rating Watch Negative where there were placed on 21 April 2011. The Outlook on the Long-term ratings is Negative.
The rating affirmation reflects Freight One's standalone credit profile without any parental support or constraint. The company's business profile is supported by its position as a leading freight rolling stock operator in Russia by fleet size and transportation volumes, with a strong ability to execute customer demand, and a diversified fleet and customer base. This supports its strong profitability and operating cash flows. However, its business is exposed to volatile economic drivers affecting both volumes transported and freight rates.
The Negative Outlook reflects the uncertainty regarding Freight One's financial and business profile following the purchase of a 75% stake (minus two shares) in Freight One by Nezavisimaya Transportnaya Kompaniya LLC (Independent Transport Company; NTK) in December 2011 and the possible purchase of the remaining 25%.
Freight One's balance sheet leverage is low (0.3x at YE11) and the company does not have significant operating leases in place. Fitch notes that NTK's RUB75bn acquisition loan is non-recourse to Freight One, but the agency anticipates that the latter's cash flows will be needed to service the acquisition debt due to the assumption that the size of cash flows from the other operations of NTK and its parent are insufficient. Considering that JSC Russian Railways (RZD, 'BBB'/Stable) remains the 25% shareholder in Freight One, dividends are the most likely means of Freight One servicing the acquisition loan.
However, NTK expressed its interest in purchasing the remaining 25% stake from RZD. Fitch understands that a price or a timeline has not been set yet and that the Russian government will have to approve the sale, possibly over the coming months. The sale would likely lead to an effective assumption of the possibly significantly increased acquisition debt which would put pressure on Freight One's credit metrics. However, the potential timeline for the completion of such a transaction is more commensurate with a Negative Outlook than a Negative Watch, supporting this rating action.
Liquidity is adequate, supported by RUB29bn of cash and deposits as of 1 July 2012 compared to around RUB1bn of debt and finance leases due in H212. Freight One's debt maturity profile is balanced with around RUB1.5bn due annually. Fitch-expected pre-dividend free cash flow is positive. The company has not declared dividends since mid-2011, but Fitch expects dividends to resume from 2013, at the latest.
Company — Freight One
Full nameJSC Freight One