- In order to manage credit risks, Russian Railways has approved methods for calculating credit limits and regulatory documents that govern work with bank guarantees and sureties, including the unified corporate standard of the Russian Railways Group for work with collateral instruments. Based on the credit limit calculation methods, the Company conducts an assessment of financial institutions and calculates the relevant credit limits to regulate transactions with banks involving deposits and the receipt of bank guarantees depending on the assessment of the condition of the corresponding financial institution.
- When interacting with companies in the real sector, the Company employs a system of management standards that includes standard settlement terms with counterparties, interim measures, treasury control, rate setting of receivables and payables, commitment bank guarantees for the proper performance of obligations (including over warranty periods for supply contracts), repayment of advances and sureties of parent companies in order to ensure that Russian Railways is protected against risks of counterparties failing to execute (improperly executing or late execution) their obligations. Financial institutions that issue bank guarantees and sureties are selected taking into account credit history and the existing credit limits.
Financial risk management
The framework document of the financial risk management system is the Company’s Financial Risk Management Policy.
Framework of the Company’s financial risk management system
Risk management principles
Management tools, including hedging
- analysis and assessment,
- comparison of the risk magnitude with the risk appetite,
- adoption of decision (selection of risk management strategy),
- actual risk management, including using hedging tools if necessary,
- monitoring of results,
- assessment of effectiveness of financial risk management measures (self-diagnostics).
The centre for decision-making with respect to financial risk management is the Company’s Financial Risk Management Commission — a collective body comprised of representatives from several Departments chaired by the senior vice president for economics and finance.
The Company focuses on managing the following key financial risks
- The Company performs operational management of liquidity based on the balance of payments, payment schedule and payment positions within the limits of the approved budgets. Depending on current liquidity, the Company promptly attracts or deposits funds on the best market conditions. Operational management of liquidity is performed based on the systems of Reuters and Bloomberg.
- In order to assess these risks, the Company utilises modelling and an assessment of budget parameters taking into account potential volatility in the relevant market indicators.
- The assessment of the currency risk faced by Russian Railways and the selection of a currency risk management tool is based on an analysis of the Company’s foreign currency exposure. In order to estimate foreign currency exposure, the Company’s transactions are analysed and categorised in terms of investment, operating and financial activities. The amount and structure of the estimated foreign currency exposure impacts the Company’s borrowing policy and determines the hedging approaches. The Company regularly reviews its foreign currency exposure and makes the relevant adjustments to manage foreign currency risks and the foreign currency borrowing portfolio.
- The volatility in the rouble’s exchange rate versus the main global currencies has a varied effect on the Company taking into account cash flows within the foreign currency exposure. The Company minimises its currency risks by reducing its foreign currency exposure, including by utilising derivative financial instruments.
- The interest risk is assessed based on an analysis of the volatility of floating interest rates and the corresponding effect on the borrowing portfolio of Russian Railways.
- As regards price risk, the Company seeks to establish settlement and indexation terms in contracts with counterparties that nullify this risk as much as possible.