Russia's Analytical Credit Rating Agency (ACRA) has assigned DME Limited an 'A+'(RU) credit rating, with a stable outlook, the rating agency informed. This writes by AK&M.

The credit rating assigned to DME Limited (hereinafter, the Company, Airport, or Domodedovo) stems from low industry risks coupled with the leading market position of the Company, its strong business profile and strong liquidity as well as high profitability. On the other hand, the credit rating is under pressure from medium leverage and medium level of corporate governance.

DME Limited is a group of companies that own and operate infrastructure of the Domodedovo airport. The Airport is the second largest in Russia in terms of passenger and cargo traffic. Dmitry Kamenshchik is the ultimate controlling beneficiary of the Company.

Infrastructure companies in the transportation industry have high entry barriers for new players. More often than not, airports represent natural monopolies, which predetermines lack of any direct competition between them. There are three airports in the Moscow Air Hub with the major passenger and cargo traffic in the Russian air transportation market. Domodedovo is the second largest airport in the Moscow Air Hub being only slightly behind the leader.

Airport's infrastructure is well developed: it includes two independent parallel runways and passenger and cargo terminals (256,000 sq. m and 13,400 sq. m, respectively). Fuel installations are capable of refilling 10 aircrafts per hour. By commissioning a new runway and gradual commissioning of new premises in the terminal, Airport's capacity may increase after 2018. ACRA assesses the investment program implemented by the Company as large-scale with low flexibility. Domodedovo services passenger and cargo traffic of Moscow and Moscow Region that exhibit high social and economic development. Having a status of federal international airport the Company may service international flights of Russian airlines as well as accommodate departure and arrival flights of international airlines.

According to ACRA estimates, the debt of Domodedovo amounted to RUB 41.3 billion as at year-end 2016 comprising foreign currency-denominated loans and borrowings as well as debt under concession agreements. ACRA notes a substantial amount of the Company's foreign currency commitments. Foreign currency revenue from servicing international flights represents somewhat of a natural hedge of FX risks. ACRA assesses leverage as medium as total debt to FFO before net interest payments ratio would stand at 3.6x by year-end 2017. Coverage is high: FFO before interest payments to interest payments would be 5.7x in 2017, according to ACRA estimates. ACRA expects no significant changes in the leverage and coverage indicators of the Company in 2018-2019.

Following 2016 results, revenues of Domodedovo were at RUB 38.2 billion, and FFO before net interest payments and taxes stood at RUB 14.3 billion, which corresponds to a medium business size (according to ACRA classification). FFO margin before net interest payments and taxes was 39%. The Airport serviced 28.5 mln passengers, and the cargo traffic was 142,200 tons. In view of a significant increase in passenger traffic in 2017, ACRA expects revenues and FFO before net interest payments and taxes to grow by 9%. ACRA expects the 2017 profitability to stand at 37%. ACRA expects no significant increase in the Company's revenue and FFO before net interest payments and taxes.

Debt obligations of Domodedovo are of long-term nature. The only large payment in the forecast period (2017-2019) is due in 2018 when the Company has to repay the first Eurobonds issue (USD 220 mln). This fact exerts pressure on the liquidity. ACRA expects short-term liquidity ratio to be at 1.3x in 2018-2019. Another factor restraining liquidity is a massive investment program (we estimate the average capital expenditures to revenues ratio to be around 35% in 2017-2018), with the substantial spending involved driving free cash flow (FCF) into a negative territory. According to ACRA forecast, FCF margin of Domodedovo would be negative in 2017-2018 (around -15%), and in 2019 and thereafter, it would approach zero.

Strategic plans of Domodedovo are primarily related to the Airport's capacity increase and transport infrastructure development as well as operational efficiency improvement. In ACRA's opinion, the strategy is not sufficiently formalized. The Company's Board of Directors does not have enough rights, and management makes key decisions in view of the major shareholder's interests. The bulk of Domodedovo's property is on the books of a subsidiary registered in Cyprus. The group's structure is complicated as various businesses are managed by separate legal entities, which, however, is economically justified. The Company has an established risk management system, the Agency, however, is concerned by the practice of making large dividend payouts while FCF is negative. Financial information disclosure is high enough.

In January-September 2017, the passenger flow at Domodedovo airport increased by 8% year-on-year to more than 24 million.