London, 07 August 2020 -- Moody's Investors Service ("Moody's") has today confirmed the Ba3 corporate
family rating (CFR) and Ba3-PD probability of default rating (PDR)
of TransContainer PJSC (TransContainer), the leading rail container
transportation company in Russia. TransContainer's outlook
has been changed to stable from ratings under review. This concludes
the review for downgrade initiated by Moody's on 6 May 2020.
RATINGS RATIONALE
The confirmation of TransContainer's rating at Ba3 with a stable
outlook reflects Moody's expectation that, despite the persistent
corporate governance risks following the consolidation of a 99.6%
stake in the company by Delo LLC (Delo) in April 2020 and TransContainer's
involvement in the funding structure of its acquisition by Delo,
TransContainer will (1) pursue its balanced new financial policy and maintain
its leverage below 3.5x Moody's-adjusted total debt/EBITDA
on a sustainable basis, supported by the company's sound operating
performance amid the coronavirus-induced global economic downturn;
and (2) maintain adequate liquidity and be able to procure new external
funding in a timely fashion as needed to finance its dividend payouts
and sizeable development capital spending.
Delo acquired TransContainer for around RUB120 billion, 75%
of which was funded by long-term bank debt, while the remaining
was financed by the proceeds from the sale of a 30% stake in Delo
to Atomenergoprom, JSC (Baa3 stable) at the end of 2019.
Moody's expects Delo, as a strategic investor, to pursue
an overall prudent operational and financial strategy for TransContainer.
In particular, along with developing potential synergies with other
transport and logistics assets of the group, TransContainer's
new development strategy is now increasingly focused on improving its
competitive position through enhanced service offerings and operating
efficiencies.
In addition, while Delo will likely rely on TransContainer to service
its significant acquisition debt, the additional financial burden
on TransContainer in the form of rising shareholder distributions and
the push down of around RUB40 billion of the acquisition debt to it,
will remain manageable relative to the scale of TransContainer's
earnings and cash flow. Its ultimate size should also be limited
by the company's new internal leverage cap of 3.0x net debt/EBITDA,
which Moody's views as balanced for the current rating level.
The Russian rail-based container transportation market has been
resilient to the global economic downturn amid the coronavirus pandemic,
and will likely remain supportive for TransContainer's operating
and financial performance. Although there remains a risk of some
market slow-down in the second half of 2020 in case the economic
and global trade disruptions extend, Moody's expects TransContainer
to maintain its transportation volume growth at least at a high single-digit
rate through 2020-21, compared with 11% in H1 2020
and 22% in July 2020.
Strong cargo volume growth, in particular, mitigate the pressure
on TransContainer's earnings from lower prices for container operator
services compared with the record 2019 levels and rising empty runs driven
by imbalances in the container cargo flows across segments (strong growth
in export and transit operations and, at the same time, slowing
imports and domestic transportation on the back of the weak internal consumption
and rouble depreciation). In addition, after deteriorating
in Q1 2020, when its Moody's-adjusted operating margin
fell to 10%, some improvement in TransContainer's profitability
in Q2 2020 has been supported by (1) the gradual recovery in prices because
of the fleet deficit in the rapidly growing market; (2) the market
stabilisation after major swings in Q1 2020, and (3) the company's
continuous focus on optimisation of its logistics and fleet management
and tight cost control.
Although the recent shareholder change will ultimately lead to a significant
weakening in TransContainer's financial metrics, its historically
modest leverage (Moody's-adjusted debt/EBITDA at 1.4x
as of 31 March 2020) and stabilising earnings should accommodate a significant
increase in debt and material dividend payouts, as well as its substantial
investments in fleet expansion to capture market growth opportunities.
While TransContainer's financial metrics will deteriorate materially
towards year-end 2020, its Moody's-adjusted
debt/EBITDA will likely stay at or below 3.5x on a sustainable
basis, which would remain commensurate with its Ba3 rating.
TransContainer will also retain its solid interest coverage metrics,
with its Moody's-adjusted EBIT/interest expense likely to
stay at or above 4.0x.
Moody's estimates that as of 30 June 2020, TransContainer's
cash balance of RUB5.2 billion, together with operating cash
flow which Moody's expects the company to generate over the next
12 months, as well as RUB5.3 billion proceeds from the sale
of a 50% stake in its Kazakhstani joint venture Kedentransservice
JSC in May 2020, would be sufficient to cover its debt repayments
of RUB3.5 billion over the same period, maintenance capital
spending and shareholder distributions. Although TransContainer
will require external funding to finance its substantial expansion plan
in 2021, Moody's expects the company to be able to procure
the necessary financing in a timely manner, while its development
programme remains flexible. In April 2020, TransContainer
already cut back on its 2020 development capital spending in response
to the evolving economic downturn. In addition, Moody's
expects that the company will retain some flexibility in adjusting its
dividend amounts, which are to be ultimately governed by its new
financial policy.
At the same time, there remain corporate governance risks following
the change of TransContainer's controlling shareholder, including
the risks related to the lack of a track record of operating under the
new ownership structure, which has become highly concentrated,
and the company's ability to consistently adhere to its new financial
policy.
TransContainer's Ba3 rating continues to factor in the company's
solid business profile with (1) a strong competitive advantage as a reliable
leading container transportation service provider, despite its relatively
small size on a global scale; (2) integrated business model,
which comprises freight-forwarding and logistics operations,
as well as truck deliveries; (3) a balanced asset base comprising
the largest domestic flatcar and container fleet and a developed network
of rail-side container terminals; and (3) diversified customer
base.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The stable outlook reflects Moody's expectation that following the
controlling shareholder change, TransContainer's leverage
will remain within Moody's thresholds for its current rating,
and the company will maintain its sound operating performance and adequate
liquidity, and will pursue its balanced financial policy and prudent
development strategy.
Positive pressure on the rating could develop if TransContainer (1) builds
a track record of strong operating and financial performance under the
new shareholder structure; (2) reduces its Moody's-adjusted
total debt/EBITDA below 2.5x on a sustainable basis; and (3)
maintains robust liquidity at all times, including during an active
investment phase.
TransContainer's rating could be downgraded if its liquidity,
or operating and financial performance materially deteriorate, including
as a result of more aggressive financial policies and shareholder distributions,
with Moody's-adjusted debt/EBITDA increasing above 3.5x
on a sustained basis.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Surface Transportation
and Logistics published in May 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1113382.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
TransContainer PJSC (TransContainer) is the leading intermodal container
transportation company in Russia. In the 12 months ended 31 March
2020, TransContainer generated revenue of RUB87.4 billion
and Moody's-adjusted EBITDA of RUB18.6 billion.
The company's principal shareholder is Delo which owns a 99.6%
stake. Delo also owns a container terminal in the Black Sea Basin,
a transportation logistics business, Ruscon Ltd, and a 30.75%
stake in Global Ports Investments Plc (GPI, Ba2 stable), Russia's
leading sea port container operator with terminals in the Baltic Basin
and the Far East.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
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same series, category/class of debt, security or pursuant
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Ekaterina Lipatova
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Limited, Russian Branch
7th floor, Four Winds Plaza
21 1st Tverskaya-Yamskaya St.
Moscow 125047
Russia
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Artem Frolov
VP - Senior Credit Officer
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
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