OREANDA-NEWS. Fitch Ratings has affirmed Russian Highways State Company AVTODOR's Long-term foreign and local currency Issuer Default Ratings (IDR) at 'BBB-', National Long-term rating at 'AAA(rus)' and Short-term foreign currency IDR at 'F3'. The Outlooks on the Long-term IDRs are Negative and on the National Long-term rating is Stable. Fitch has also affirmed the senior debt ratings of AVTODOR at 'BBB-'/'AAA(rus)'.

The affirmation of the IDRs and senior debt ratings reflects Fitch's unchanged view on the strategic importance of AVTODOR, its special legal status as a state company solely owned by Russia (BBB-/Negative), and its strong operational and financial links with the state.

KEY RATING DRIVERS
AVTODOR's ratings are equalised with those of Russia, which reflect a high propensity of state support in case of need. Using its public-sector entities rating criteria the credit links to Russian Federation take into account the company's special legal status as a government vehicle in the development of the national road network, tight control by the government and sole state ownership. The ratings also reflect AVTODOR's strong operational and financial integration with the government.

Special Legal Status Company
Fitch views AVTODOR's special legal status as a highly supportive factor for the ratings. AVTODOR enjoys the special legal status of a state company, whose debt is fully guaranteed by the sovereign. It was established in 2009 by a special law as the operating arm of the Russian state for the design and construction of the national highway network, the rebuilding of existing roads and the development of highway infrastructure and service.

Strict Government Control
The Russian Federation is the sole owner of AVTODOR. The company reports to the Federal Ministry of Transportation while the company's supervisory board is composed of top-ranking government officials and business representatives. The board oversees and approves the company's strategy, its business plan and borrowings, subject to the state's final approval.

In Fitch's view AVTODOR's policy on transparency and information disclosure is adequate by national standards. The company publishes annual reports and quarterly updates, highlighting its operational activity and financials. Since 2015 AVTODOR has published consolidated annual financial statements audited in accordance with IFRS for 2013-2014 fiscal years (prior to that AVTODOR reported according to Russian accounting standards).

Highways Development - State's Top Priority
AVTODOR's strategically important highways (M1 Belarus, M4 Don, M11 St. Petersburg - Moscow, CKAD Central Beltway Road) are attractive for private investors. The federal government views highway modernisation as highly important for the country's economic development and growth prospects.

AVTODOR's original strategic purpose was to act as a government agent to stimulate private investments in primarily large-scale road infrastructure projects via public-private partnerships (PPPs). Following legal changes in 2014-2015 we expect AVTODOR to participate in regional road development projects, which are normally of a smaller scale with minimal investments starting from RUB1bn.

Strong Integration with State
The state's funding of the company is composed of subsidies and bonds issued in favour of development institutions. According to recent amendments to the plan AVTODOR could issue bonds up to RUB241.7bn by end-2020 (RUB21.7bn issued in 2015). Fitch expects that a significant portion of this debt would have either explicit government guarantees on the principal or be issued to state development institutions.

AVODOR's liquidity position improved in 1H15 with RUB51.6bn held on federal treasury accounts and deposited in state-owned banks (2014: RUB9.6bn). High cash holdings provide the company with adequate operating flexibility and mitigate most refinancing risk.

New Toll Roads Commissioned
AVTODOR commissioned two newly-built sections of M11 St. Petersburg - Moscow toll road in 2015, along with several sections of M4 Don Highway. The company's portfolio of commissioned toll sections should significantly increase by end-2018, which is the deadline for the commissioning of the inaugural sections of CKAD Central Beltway Road and the remaining sections of M11 Highway.

RATING SENSITIVITIES
A negative rating action on the Russian Federation or weakening of the company's links with the state as reflected by a material reduction in annual subsidies or significant growth of market-originated unguaranteed debt would lead to a downgrade.