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TEXT-Fitch affirms TransContainer at 'BB+'; Negative Outlook
Fitch applies the one-notch uplift for parental support from RZD to TransContainer's ratings in accordance with its Parent-Subsidiary Rating Linkage dated 8 August 2012. The agency recognises the moderate operational and strategic ties between TransContainer and RZD, whose intentions to maintain a 25% stake in TransContainer implies a continued commitment to it and its perceived importance to RZD in terms of strategy and operations. RZD's recent agreement to purchase 75% of France's Gefco, a logistics company, strengthens its position in cross-border logistics operations and may potentially further delay TransContainer's disposal. Lack of progress regarding RZD's disposal of TransContainer's shares in the next six months may result in a revision of the Outlook to Stable from Negative as long as TransContainer's performance remains in line with expectations for the current standalone rating level.
Fitch views TransContainer's standalone profile as commensurate with a weak 'BB' rating . It is driven by TransContainer's leading position in Russia by flatcar and container fleet size, its strong presence in key locations across the country, a well-diversified customer base and moderate leverage. TransContainer's ratings are capped at the 'BB' level by its moderate size as compared to 'BB'-rated Russian companies and the historical cyclicality of container shipment volumes.
In 9M12 TransContainer's rail transportation volumes reached 1.1m twenty-foot equivalent units (TEU), a 10.2% increase yoy mainly due to higher import and transit container shipment volumes. Its 9M12 gross unconsolidated revenues under Russian Accounting Standards reached almost RUB25bn, up 19% yoy on the back of strong operating results. Fitch conservatively estimates that Russia's container transportation volumes will increase by mid-to-high single digits in 2012-2014 fuelled by expected moderate GDP growth and high potential for further cargo containerization in Russia.
In 2011, TransContainer generated positive free cash flows (FCF) for the first time since 2007 on the back of strong operating performance. Fitch expects that in 2012-2013 TransContainer's FCFs will be negative mainly due to a large step-up in capex (nearly doubling over the next three years) and massive, by the company's historical standards, 2011 dividends of RUB1.2bn paid out in July 2012. In 2011, TransContainer reported gross funds from operations (FFO) adjusted leverage of 1.5x, down from 2.2x in 2010, and FFO interest cover of 8.6x. Fitch considers further deleveraging unlikely at this time given the company's significant capex plans in 2012-2013. The agency expects the company's FFO adjusted leverage to remain under 1.6x in the medium term, and FFO interest cover to remain 8.0x or above.
Fitch views TransContainer's debt structure and liquidity as adequate. RUB bonds make up most of TransContainer's debt; the rest is mainly unsecured bank loans. Virtually all debt is raised at the parent level. At end-2011, RUB4.1bn or 44% of TransContainer's gross debt was due in 2013 including RUB3bn domestic bonds maturing in February 2013. The company plans to issue bonds for up to RUB5bn in 2013 to refinance its maturing liabilities. At 30 June 2012 TransContainer had cash and short-term deposits placed at Russia's largest banks including JSC Bank VTB ('BBB'/Stable) and OJSC Gazprombank of RUB4.7bn that was sufficient to cover short-term maturities of RUB3.6bn and dividend payments of RUB1.2bn that were made in July 2012.
WHAT COULD TRIGGER A RATING ACTION
Positive: future developments that may, individually or collectively, lead to a positive rating action include:
A delay in the disposal by RZD of TransContainer's shares in the next six months may result in a revision of the Outlook to Stable from Negative as long as TransContainer's performance remains in line with expectations for the current standalone rating level.
Negative: future developments that may, individually or collectively, lead to a negative rating action include:
FFO adjusted leverage consistently above 2x and FFO interest coverage consistently below 8x, perhaps as a result of a prolonged step-up in capex, could result in a negative rating action.
Once privatised, TransContainer's ratings may be affected by the relative credit strength of a new majority shareholder and the parent-subsidiary arrangements put in place . Sizeable acquisition funding raised at the TransContainer level may put pressure on the ratings.
The rating actions are as follows:
Long-term IDR: affirmed at 'BB+'; Negative Outlook
Long-term local currency IDR: affirmed at 'BB+'; Negative Outlook
Short-term IDR: affirmed at 'B'
Short-term local currency IDR: affirmed at 'B'
National Long-term rating: affirmed at 'AA(rus)'; Negative Outlook
Local currency senior unsecured rating: affirmed at 'BB+';
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