The credit rating of PJSC "HSCI" (hereinafter, HSCI, or the Holding) reflects the medium asset quality, which is explained by the fact that the main operating companies of the Holding are at different stages of their development. In addition, the diversification of the asset portfolio is limited as the Holding's operating companies belong to different segments of the same industry, so that the industry diversification is associated with the medicine and healthcare markets only, whereas dividend flows are highly concentrated since HSCI receives most dividends from only one of its operating companies.
The financial profile of the Holding shows a medium level of risk. In ACRA's opinion, HSCI's leverage is medium, and it was assessed by the Agency taking into account both the current liabilities and the borrowings planned by the Holding. ACRA estimates the level of HSCI's liquidity as medium since the volume of repayments expected in 2022 is significant though they include intra-group liabilities.
HSCI (Human Stem Cell Institute) is a holding that acts as a strategic investor in innovative medical and healthcare companies.
Key rating assessment factors
Medium asset quality. IMCB PJSC (hereinafter, IMCB), a major operating company of the Holding, is the largest bank of hematopoietic and mesenchymal stem cells of umbilical cord blood in Russia and the CIS. It offers storage services for biomaterial used in treatment of critical deceases. IMCB generates the bulk of HSCI's incoming dividend flow. The IMCB's business model allows for generating a sustainable and predictable cash flow that ensures a stable financial standing of this company. ACRA notes IMCB's extremely low leverage, high profitability, small business size, and medium operating profile. IMCB shares are quoted at the Moscow Exchange.
GENETICO LLC (hereinafter, GENETICO) is one of the leaders in the Russian market of genetic tests. The company focuses on medical genetic test systems and genetic research for prevention, detection and treatment of a wide range of deceases, including cancer. The company's services include preimplantation genetic testing, non-invasive prenatal testing, genetic testing of tumors in order to determine target therapy, NGS sequencing for diagnosing purposes, scientific research, etc. ACRA assesses the operating profile of GENETICO as medium and notes that the risks within the company's financial profile are increased due to the high leverage and small business size, which, in the Agency's opinion, is partly explained by that the company is currently in its investment stage. In 2020, GENETICO issued bonds for RUB 145 mln that are quoted at the Moscow Exchange.
The Holding's investments also include Nextgen LLC that holds a package of intellectual property rights for Neovasculgen, a pharmaceutical designed to fight lower limb ischemia, and designs, manufactures and offers genetic pharmaceuticals, including Neovasculgen, that are sold over the counter, and Reprolab LLC, a company that offers services of personal and donor banks of reproductive cells and tissues, as well as services for storing and selling donor material used in fertility treatment. In ACRA's opinion, both companies are characterized by low leverage, high profitability, small size, and medium operating profile. The strong free cash flow of the companies may make them additional sources of dividend income for HSCI.
Low-diversified financial investments. All operating companies of the Holding operate in the same medicine and healthcare industry. At the same time, HSCI is moderately diversified with this industry, as the Holding's operating companies offer such services like genetic therapy, genetic research and diagnostics, bio-insurance, acceptance and selling reproductive materials, innovation services in aesthetic medicine, etc. In ACRA's opinion, the Russian market of innovative medical services is at its initial stage of development, and, if included in the mandatory medical insurance package, such services would drive it up. Furthermore, ACRA is of the opinion that the Holding's diversification of incoming cash flows is low due to the high concentration on dividends from IMCB.
Medium leverage. As of December 31, 2020, HSCI's liabilities included intra-group loans (most of which are granted by IMCB) and amounted to about RUB 400 mln. The Holding plans to attract market debt to finance a number of projects implemented by its operating companies, after which the loan-to-value ratio (LTV), according to ACRA's estimates, may reach 0.4x to indicate the medium leverage. Interest payments on the Holding's intra-group liabilities are almost equal to zero, so that the coverage of interest payments is extremely high. External borrowings will increase interest expenses and, consequently, push the coverage down.
Medium liquidity. The entire current debt of the Holding is to mature by 2022, and the Agency have no information on any significant credit lines available to HSCI. This puts significant pressure on the Holding's liquidity. At the same time, ACRA takes into account the intra-group nature of the liabilities maturing in the next two years and HSCI's plans to repay them in a cashless form in order to avoid a significant outflow of funds. Taken together, these facts allow the Agency to assess the HSCI's liquidity profile as medium.
Key assumptions
- Raising external debt to finance the operating companies' projects in 2021;
- Annual incoming cash flow from investments at RUB 150–200 mln in 2021–2023 and maintaining operating expenses at the level of 2020;
- Retaining the current investment structure of the Holding.
Possible outlook or rating change factors
The Stable outlook assumes that the rating will most likely stay unchanged within the 12 to 18-month horizon.
A positive rating action may be prompted by:
- Significant decline in the leverage of HSCI;
- Higher quality of the Holding's investments due to growing proceeds and profits of its operating companies;
- Significant increase in the diversification of the Holding's investment portfolio by both industry and dividend generating company.
A negative rating action may be prompted by:
- Higher leverage;
- Worse quality of the Holding's investments;
- Worse access to sources of liquidity.
Rating components
SCA: bb+.
Adjustments: none.
Issue ratings
No outstanding issues have been rated.
Regulatory disclosure
The credit rating has been assigned to PJSC "HSCI" 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, and Key Concepts Used by the Analytical Credit Rating Agency within the Scope of Its Rating Activities.
A credit rating has been assigned to PJSC "HSCI" for the first time. The credit rating and its outlook are expected to be revised within one year following the publication date of this press release.
The credit rating was assigned based on the data provided by PJSC "HSCI", information from publicly available sources, as well as ACRA’s own databases. The credit rating was assigned based on the RAS financial statements of PJSC "HSCI". The credit rating is solicited, and PJSC "HSCI" participated in its assignment.
No material discrepancies between the provided data and the data officially disclosed by PJSC "HSCI" in its financial statements have been discovered.
ACRA provided no additional services to PJSC "HSCI". No conflicts of interest were discovered in the course of credit rating assignment.
