ACRA has affirmed the credit rating of KORTROS LLC (hereinafter, the Company), a parent company of RSG International Ltd and Russian holding company of KORTROS Group, at BBB-(RU).
The outlook has been changed to Positive based on ACRA’s expectations of higher FFO and lower interest payments, due to which ACRA expects to see improved leverage and debt service indicators.
RSG International Ltd is the Company’s sole asset. All the rating assessment factors of the Company are similar to those of RSG International Ltd (ACRA rating — BBB-(RU), outlook Positive). The credit rating of the Company is based on very high industry risk, a low debt service assessment, and medium assessments of leverage and the operating risk profile. At the same time, the rating is supported by the Company’s strong liquidity, high profitability and very high cash flow, as well as the high likelihood of support from the key shareholders.
Key assumptions
- Construction projects to be completed and sales targets to be met as planned;
- ACRA’s estimates only include projects under construction and projects to be commissioned in accordance with the current financial plan of the Company;
- No significant decline in prices in the primary real estate market of Moscow;
- Consolidation of the HEADLINER project in 2020.
Potential outlook or rating change factors
The Positive outlook assumes that the rating will most likely change within the 12 to 18-month horizon.
A positive rating action may be prompted by:
- Average weighted ratio of FFO before net interest payments to interest payments increasing above 2.5х;
- Ratio of net debt to FFO before net interest payments decreasing below 3.5x and concurrent decline in the ratio of adjusted total debt to capital to lower than 1x.
A negative rating action may be prompted by:
- Average weighted ratio of FFO before net interest payments to interest payments declining below 1.0х;
- Ratio of net debt to FFO before net interest payments rising above 5х and FCF margin turning negative;
- Average residential real estate prices declining by more than 15%, while prices for construction work and materials increase as projected;
- Access to external liquidity sources worsening considerably;
- Regulatory changes that can significantly affect the Company’s performance.
Rating components
Standalone creditworthiness assessment (SCA): bb+.
Support: one notch up to the SCA.
Regulatory disclosure
The credit rating was assigned to KORTROS LLC under the national scale for the Russian Federation based on the Methodology for Credit Ratings Assignment to Non-Financial Corporations under the National Scale for the Russian Federation, the Key Concepts Used by the Analytical Credit Rating Agency within the Scope of Its Rating Activities, and the Methodology for Analyzing Member Company Relationships Within Corporate Groups.
The credit rating assigned to KORTROS LLC was first published by ACRA on November 12, 2018. The credit rating of KORTROS LLC and its outlook are expected to be revised within one year following the publication date of this press release.
Disclosure of deviations from the approved methodologies: the level of group support and the final credit rating were not determined in line with the Methodology for Analyzing Member Company Relationships Within Corporate Groups. The level of support was assessed using an approach for an unidentifiable group due to a lack of information required to make the creditworthiness assessment of the Supporting Organization.
The credit rating was assigned based on the data provided by KORTROS LLC, information from publicly available sources, as well as ACRA’s own databases. The credit rating is solicited, and KORTROS LLC participated in its assignment.
No material discrepancies between the provided data and the data officially disclosed by KORTROS LLC in its financial statements have been discovered.
ACRA provided no additional services to KORTROS LLC. No conflicts of interest were discovered in the course of credit rating assignment.
