(The following statement was released by the rating agency)
Sept 26 - Fitch Ratings has assigned FSUE Post of Russia (PR) a Long-term foreign and local currency rating of ‘BBB’, a Short-term foreign currency rating of ‘F3’ and a National Long-term rating of ‘AAA(rus). The Outlooks for the Long-term ratings are Stable. The rating action also affects the company’s outstanding domestic bonds (RUB7bn).
PR’s ratings reflect its strong legal, strategic and operational links with the Russian state, its role of national postal operator and the strategic importance of its widespread network of 42,000 postal offices for pensions payments and potential distribution of e-government services. Close ties with the state is a key rating factor, implying in Fitch’s view a high likelihood of support if needed. Fitch used its public sector entities rating criteria and applies a top-down approach in its analysis of PR.
Fitch notes that the weaker links with government or a lack of financial support in case of a significant deterioration of PR’s financial structure would be negative for the ratings as would any negative rating action on the Russian Federation (‘BBB’/Stable).
PR is mandated to provide socially significant tariff regulated services. For these services the state provides material financial support to PR with operating subsidies averaging RUB8bn or 8% of revenue in 2010-2011. These transfers only partially (about 50%) offset losses incurred on regulated activities. Nonetheless, PR delivered balanced accounts due to cross subsidies from non-regulated activities. Fitch views the higher efficiencies on core business as a key future challenge for PR, in a context of the medium-term decline of traditional mail volumes and growing competition from electronic and web-based mail.
Fitch expects PR’s operating performance to follow the trend established in 2010-2011, with revenue growing by about 7% yoy and EBITDA at about RUB6.4bn by end-2014 (2011: RUB5bn). Personnel accounts for about 60% of costs, thus planned control of staff turnover should moderate and align spending growth to expected inflation (about 7%). Fitch notes that the lack of a long term government plan on tariff increases could jeopardise expected EBITDA and cash flow growth, pressuring projected capex.
PR intends to broadly upgrade its infrastructure (logistics, facilities, IT-solutions). PR plans to invest about RUB45bn in 2012-2014, pending availability of government subsidies. In Fitch’s baseline scenario, lower than-planned investments of about RUB29bn.
Fitch expects an increase in the company’s debt up to RUB24.5bn by 2014, leading to a still conservative net debt/EBIDTA below 2x in 2012-2014. PR’s debt profile is long-term (92%) with no material refinancing risk until 2014, when bondholders might exercise a put option on RUB7bn domestic bonds. The debt is not state-guaranteed with a change of control clause in most international financial agreements.
PR’s liquidity position is sound with cash (RUB10.5bn) and loan facilities (RUB9bn) with medium-term tenor, largely covering maturities in 2012-2013 (RUB2.5bn). High cash holdings, mostly held with state-owned Russian banks and partly (40%) in postal offices for daily activity, provides PR with adequate flexibility to tap capital markets.
A credit analysis on PR will shortly be available at www.fitchratings.com.
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