The credit rating of J-S.C. "PIONEER GROUP" (hereinafter, Pioneer, or the Company, or the Group) has been upgraded in view of the increased volume of the Group's portfolio of projects and a better ratio of adjusted total debt to capital. ACRA also notes the Company's improved corporate management practices. The credit rating is based on the strong assessment of operational risk profile, very low leverage, very high profitability and coverage indicators, and strong assessments of liquidity and cash flow. The rating is under pressure from the very high industry risk and the medium assessments of the Company’s market positions and business size.

Pioneer has operated in the real estate market since 2001, and today it is a leading developer in Moscow and Saint Petersburg. The Company is focused on the construction of comfort, business and premium class residential buildings, as well as commercial real estate properties. As of September 30, 2021, the total floor area of projects at construction and design stages in the Company’s portfolio was 671,000 m2 and 1.36 mln m2, respectively.

KEY RATING ASSESSMENT FACTORS

The industry risk is assessed as very high due to the pronounced cyclical nature of the sector, high amount of overdue debt, and substantial number of developers that have defaulted in the last five years. The industry the Company belongs to is a very strong factor limiting the credit rating.

The operational risk profile assessment has been upgraded to strong due to the growing diversification of the Company's project portfolio. The current portfolio of Pioneer includes 15 projects, with five projects expected to be sold in 2021. The share of the largest project in the Company's sales will not exceed 25% in 2022–2024, and the portfolio is very well diversified by class: in the next three years, approximately equal sale shares will fall on residential real estate of comfort, business and premium classes and commercial (office) real estate.

Very low leverage and very high coverage indicators. When calculating the ratio of net debt to FFO before interest payments and taxes, ACRA adjusted the total debt raised for escrow account project finance by the amount of funds held on escrow accounts. The weighted average adjusted net debt of the Company for 2019–2024 is estimated by the Agency at below zero. The ratio of adjusted total debt to capital for the above period should amount to 0.5x, according to ACRA's estimates. The weighted average ratio of FFO before net interest to net interest for 2019–2024 is estimated by ACRA at 18.4x.

The strong assessment of the Company's liquidity is primarily due to a significant positive free cash flow expected in 2021–2023 (taking into account adjustments for expenses under projects implemented using the project finance backed by escrow accounts), as well as an extremely comfortable debt repayment schedule. In addition, when assessing free cash flow, ACRA takes into account the Company's new dividend policy, which now stipulates dividend payments of no more than 20% of net profits under IFRS.

KEY ASSUMPTIONS

  • Implementing the construction and sales plans;

  • ACRA took into account only projects under construction and projects expected to be commissioned in accordance with the current financial plan of the Company;

  • No significant price fall in the primary real estate market of Moscow in 2022–2023;

  • Dividend payments of no more than 20% of net profits under IFRS.

POTENTIAL 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:

  • Stronger market positions of the Company and a concurrent growth in the current construction project portfolio above 2 mln m2 and the weighted average FFO before net interest and taxes exceeding RUB 30 bln.

A negative rating action may be prompted by:

  • The weighted average ratio of FFO before net interest to net interest falling below 8x;

  • The average weighted ratio of adjusted net debt to FFO before net interest exceeding 1x;

  • Prices in the residential real estate market of Moscow declining by over 15% in 2022–2024;

  • Regulatory changes that may impair the Company’s financials.

RATING COMPONENTS

Standalone Creditworthiness Assessment (SCA): a-.

Adjustments: none.

ISSUE RATINGS

No outstanding issues have been rated.

REGULATORY DISCLOSURE

The credit rating has been assigned 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 the Key Concepts Used by the Analytical Credit Rating Agency within the Scope of Its Rating Activities.

The credit rating of J-S.C. "PIONEER GROUP" was published by ACRA for the first time on November 25, 2019. 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 J-S.C. "PIONEER GROUP", information from publicly available sources, as well as ACRA’s own databases. The credit rating is solicited, and J-S.C. "PIONEER GROUP" participated in its assignment.

In assigning the credit rating, ACRA used only information, the quality and reliability of which was, in ACRA's opinion, appropriate and sufficient to apply the methodologies.

ACRA provided no additional services to J-S.C. "PIONEER GROUP". No conflicts of interest were identified in the course of credit rating assignment.

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