Feb 21 - Fitch Ratings has assigned OJSC TransContainer's
(TransContainer, 'BB+'/Negative) bond series 04 issue, a five-year RUB5bn 8.35%
bond (the bond) due 26 January 2018 a senior unsecured rating of 'BB+'. A full
list of TransContainer's ratings is at the end of this release.
The bond is unsecured and ranks pari passu with all existing unsecured debt,
including the outstanding bond series 02 issue of RUB3bn, which matures in June
2015. There are no financial ratio covenants or change of control clauses and
the mandatory prepayment terms do not relate to all of the company's debt. The
bond issuance proceeds are to be used for general corporate purposes as well as
the refinancing of debt, comprising the RUB3bn bond issue series 01, which
matures on 26 February 2013.
- Terms Generally Consistent with Existing Issuance
Similar to the bond series 02 issue, the RUB5bn bond has ten coupon periods,
each subject to equal interest rate payments. It has an amortizing repayment
structure, and will be repaid in four equal instalments on the seventh, eighth,
ninth and tenth coupon payment dates.
- Mandatory Prepayment Terms Provide Some Creditor Protection
There is no explicit cross-default with all unsecured debt issued by the
company, but mandatory prepayment terms refer to bonds issued by the company, if
in default or in mandatory prepayment. Whilst we view this clause as weak, the
company's relatively low leverage acts as a mitigant.
- Disposal Timeline Uncertainty Remains
TransContainer's Long-Term Issuer Default Rating (IDR) of 'BB+' currently
includes a one-notch uplift for parental support from JSC Russian Railways (RZD,
'BBB'/Stable), its present majority shareholder. The Negative Outlook reflects
RZD's earlier decision to further reduce its stake in TransContainer to below
50%, and the remaining uncertainty about the timing of the disposal and the
percentage of shares to be disposed of.
- Post-Sale Parental Support Cessation
Fitch will no longer incorporate RZD's parental support into TransContainer's
ratings, in accordance with Fitch's parent and subsidiary rating methodology,
once RZD's stake drops below 50%. RZD's plans to maintain a 25%+1 share stake in
TransContainer and a recent agreement to pay EUR800m for a 75% stake in France's
Gefco, a logistics company, implies RZD's ongoing interest in the segment and
the company, which will remain important to RZD in terms of strategy and
- Weak 'BB' Standalone Profile
Fitch views TransContainer's standalone profile as being commensurate with a
weak 'BB' rating. It is supported by the company's leading position in Russia in
terms of flat-car and container fleet, its strong presence in key locations in
Russia and central Asia after the acquisition of Kedentransservice in Kazakhstan
in 2011, a well-diversified customer base and moderate leverage.
- Moderate Leverage Expected
In 2011 TransContainer reported funds from operations (FFO) adjusted leverage of
1.5x, down from 2.2x in 2010. Fitch considers further deleveraging unlikely in
view of the company's 2012-2013 capex forecast, and the RUB1.2bn dividend paid
in 2012. The agency expects FFO adjusted leverage to remain under 1.6x in the
- Strong 12YTD Results
Its 9M12 consolidated revenues under IFRS reached RUB27.4bn, up 24.5% yoy on the
back of strong pricing and shipment volumes. EBITDA margins also continued to be
strong at around 29.2% driven by continued operating efficiencies and
- Stable Rail Sector Outlook Despite Some Slow Down
Fitch's outlook for rail transportation in Russia is stable, based on the
agency's Russian GDP growth forecast of 3.8% on average for 2013-2014. Fitch
conservatively estimates that Russia's container transportation volumes will
increase by mid- to high single digits in 2013-2014, fuelled by the expected
moderate GDP growth and the high potential for further cargo containerisation in
However, growth is not expected to be as strong as it has been over the recent
past. Despite continued growth, Q412 operating results signalled some signs of a
slowdown in the Russian container transportation market relating to the
weakening economic environment.
Positive: The current Rating Outlook is Negative. As a result, Fitch's
sensitivities do not currently anticipate developments with a material
likelihood, individually or collectively, of leading to a rating upgrade. Future
developments that may nonetheless potentially lead to a stabilization of the
- a delay in the disposal by RZD of TransContainer's shares in the coming months
as long as TransContainer's performance remains in line with expectations for
the current standalone rating level.
Negative: Future developments that could lead to negative rating action include:
- Funds from operations (FFO) adjusted leverage consistently above 2.0x 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.
LIQUIDITY AND DEBT STRUCTURE
- Adequate Liquidity, Sizeable Maturities
At end-Q312 TransContainer had RUB3.8bn in cash and short-term deposits. This
was sufficient to cover RUB3.4bn in short-term maturities, including the RUB3bn
bond issue series 01 maturing in February, which will be refinanced by the
recently issued RUB5bn bond. Its sources of liquidity are cash flows from
operations, which Fitch forecasts will continue to be healthy, and credit
facilities, albeit uncommitted with key Russian banks for RUB8bn. These are
deemed sufficient to cover its remaining obligations in 2012-2015.
Full list of TransContainer's ratings is as follows:
Long-term IDR: 'BB+'; Outlook Negative
Long-term local currency IDR: 'BB+'; Outlook Negative
Short-term IDR: 'B'
Short-term local currency IDR: 'B'
National Long-term rating: 'AA(rus)'; Outlook Negative
Local currency senior unsecured rating: 'BB+'
Additional information is available on www.fitchratings.com. For regulatory
purposes in various jurisdictions, the supervisory analyst named above is deemed
to be the primary analyst for this issuer; the principal analyst is deemed to be
The ratings above were solicited by, or on behalf of, the issuer, and therefore,
Fitch has been compensated for the provision of the ratings.
Applicable criteria, 'Corporate Rating Methodology', dated 8 August 2012, are
available at www.fitchratings.com.
Applicable Criteria and Related Research:
Corporate Rating Methodology