The credit rating of “Renaissance of VVC” LLC (hereinafter, Moskvarium, or the Company) is based on the Company’s moderate market position — located in Moscow, Moskvarium is one of the largest oceanariums in Europe and provides a wide range of exhibition services and entertainment programs. The rating also takes into account the average business profile assessment associated with the exclusivity and uniqueness of the services offered, moderate cyclicality of demand, and a high share of fixed costs in the business. The rating is supported by the high likelihood of support being provided by the shareholder. The rating is constrained by the small size of the Company, high leverage, and the low assessment of interest payment coverage.
Moskvarium is a Russian company that owns an oceanarium in Moscow and holds exhibition and entertainment events. The Company’s oceanarium is one of the largest in Europe, with an area of 12,000 square meters and more than 12,000 inhabitants. In addition, Moskvarium holds water shows, during which a team of trainers and animals perform, as well as interactive and virtual exhibitions and provides other exhibition and entertainment services.
KEY ASSESSMENT FACTORS
Moderate assessment of market position and average business profile assessment. Moskvarium is one of the largest oceanariums in Europe. It includes more than 80 aquariums containing a diverse range of aquatic animals. The oceanarium is visited by both tourists and Muscovites, which means that the flow of visitors is maintained even in the event of a sharp decrease in the number of tourists. In addition to the oceanarium, the Company puts together its own shows, offers interactive entertainment services, and also sells related souvenirs. Therefore, it can be said that the range of services provided by the Company is unique as it includes complex veterinary and technological work, which is aimed at maintaining the ecosystem of the aquariums and preserving the vital functions and health of the animals. The restrictive measures introduced to fight the spread of COVID-19 in 2020 had a negative impact on the Company’s business, which led to negative financial results. Nevertheless, ACRA notes an overall recovery of visitor numbers, revenues, and FFO before net interest payments and taxes in 2021. Due the specific nature of the Company’s activities, the majority of its expenses are fixed and cannot be reduced even if revenues decline sharply. Therefore, as the flow of visitors declined in 2020, the Company’s financial metrics were under pressure.
High leverage and low interest payment coverage. The Company’s total debt as of September 30, 2021 was RUB 4.9 bln, of which more than 90% was equity loans provided at 9% per annum. It is noteworthy that in 2020, the Company received a loan deferral due to the negative impact of anti-pandemic measures on it (taking into account the accumulated interest payments, the Company’s debt amounted to RUB 5.7 bln). ACRA expects the ratio of total debt (including accumulated interest payments) to FFO before net interest payments to stand at 7.9x, and the ratio of FFO before net interest payments to interest payments at 1.4x.
Low assessment of corporate governance. ACRA notes that there are no key governance bodies such as a board of directors and the related committees, or policies and formalized decision-making procedures. This limits the Company’s rating. At the same time, the Agency takes into account the fact that the presence of all these attributes and compliance with high standards of corporate governance is not always advisable for companies at this stage of development. ACRA notes the low level of financial transparency, which is mainly due to the lack of IFRS reporting. However, Moskvarium publishes RAS financial statements that are audited by KPMG. The Agency assesses risk management at average as the Company minimizes the main types of biological and operational risks.
Small size of the Company and very high profitability. In 2020, the Company’s revenues declined by 53% to RUB 1.1 bln (RUB 2.4 bln in 2019), while FFO before net interest payments and taxes was negative. Nevertheless, the Agency notes that revenues and profitability have recovered over nine months of 2021 and expects this trend to continue into the future. Weighted average FFO profitability before net interest payments and taxes was 30%, which corresponds to very high profitability. The Agency assesses the Company’s size as small.
Average liquidity assessment and low cash flow assessment. Despite high leverage and low interest payment coverage, the Company’s equity debt allows it to maintain an adequate liquidity position. ACRA notes that the low free cash flow (FCF) assessment is mainly due to the Company’s negative performance in 2020, however, the situation with FCF may improve if there are no new lockdowns in Moscow. The Agency expects a gradual recovery of FCF in 2021 and 2022.
KEY ASSUMPTIONS
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Capital expenditures in 2021–2023 in line with the Company’s plans;
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Recovery of revenues and FFO profitability before net interest payments and taxes in 2021.
POTENTIAL OUTLOOK OR RATING CHANGE FACTORS
The Stable outlook assumes that the rating most likely will stay unchanged within the next 12–18 months.
A positive rating action may be prompted by:
- Weighted ratio of total debt to FFO before net interest payments falling below 3.5x coupled with the weighted ratio of FFO before net interest payments to interest payments exceeding 2.5x.
A negative rating action may be prompted by:
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Short-term liquidity indicators falling below 1x;
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Weighted ratio of FFO before net interest payments to interest payments falling below 1x.
rating components
Standalone creditworthiness assessment (SCA): bb.
Support: SCA plus one notch.
issue ratings
No outstanding issues have been rated.
regulatory disclosure
The credit rating was 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, Methodology for Analyzing Rated Entities Associated with a State or a Group, and the Key Concepts Used by the Analytical Credit Rating Agency within the Scope of Its Rating Activities.
A credit rating has been assigned to “Renaissance of VVC” LLC 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 data provided by “Renaissance of VVC” LLC, information from publicly available sources, and ACRA’s own databases. The rating analysis was performed using the RAS financial statements of “Renaissance of VVC” LLC. The credit rating is solicited, and “Renaissance of VVC” LLC participated in its assignment.
Disclosure of deviations from approved methodologies: the Geographical Diversification factor was assessed with a deviation from the assessment range specified in the Methodology for Credit Ratings Assignment to Non-Financial Corporations under the National Scale for the Russian Federation due to the concentration of operations on a single facility.
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 “Renaissance of VVC” LLC. No conflicts of interest were discovered in the course of credit rating assignment.
