The credit rating of “Brusnika. Stroitelstvo i development” LLC (hereinafter, the Company, or Brusnika) is based on its very strong business profile, very strong geographic diversification, very high profitability, low leverage, high coverage, and strong liquidity. The rating is constrained by the medium assessments for market position, cash flow, and company size.
Brusnika is a developer company focusing in high-quality housing and integrated development of urban areas. Founded in 2004, the Company is headquartered in Yekaterinburg. The Company's project portfolio is diversified among seven perimeters, which include large cities of the Urals and Siberia, as well as Moscow, and the Moscow Region. According to the Company, at the beginning of 2022, the volume of construction-in-progress was 1 mln sq. m. In 2021, the Company retained its position among the top 20 Russian developers in terms of commissioned floor area and current construction portfolio.
Key assessment factors
Industry risk is assessed as very high due to the pronounced cyclical nature of the industry, high amount of overdue payments, and substantial number of developers that have defaulted over the last five years. Therefore, industry risk is a strong factor that limits the Company’s credit rating.
Company's performance in 2021. Last year, the Company's sales proceeds grew by 17%, which was primarily due to a 16% y-o-y increase in average selling prices.
In 2021, Brusnika almost doubled the amount of its land bank. The Company continued to implement its strategy aimed at entering the market of Moscow and nearby areas: the size of the acquired sites in terms of the floor area sold amounted to about 1 mln sq. m. As a result, the Moscow region's share in the Company's portfolio increased to 20% of the total floor area sold (1.3 out of 6.5 mln sq. m). The growth of the land bank is expected to transform into a higher volume of construction projects by the end of 2023: the increase is projected at about 50% compared to the end of 2021.
The very strong business profile is based on the very high diversification of the portfolio of projects and the high assessment of project terms and deadlines. The Company is on the List of Systemically Important Enterprises of Russia. It ranks first in the Unified Register of Developers in terms of consumer characteristics of residential projects. The Company was first in Russia to successfully pass the BREEAM certification and obtain the Excellent rating in the residential category. It is recognized as an innovative and proactive developer of the country.
The Company has been effective in managing its construction deadlines and costs due to well-organized general contractor and engineering oversight and design procedures within the Company, as well as application of Building Information Modelling technologies, and digitalization of business processes. In addition, the Company benefits from the developed and diversified sales channels, as well as its fast-expanding online sales platform.
Low leverage and high debt service ratio. When estimating the leverage, the Agency adjusts the total debt by the amount of project finance debt secured by buyers' escrow accounts (but not exceeding the project debt). Significant investments in the expansion of the Company's land bank resulted in an increase in the leverage and a decrease in the debt service ratio. The weighted average (for the period from 2019 to 2024) ratio of net debt to FFO before net interest is estimated by the Agency at 1.6x. When estimating the debt service ratio, ACRA includes interest payments on project debt into prime costs. The project debt interest-adjusted weighted average ratio of FFO before net interest to net interest for 2019–2024 is estimated at 5.7x.
Strong liquidity and medium cash flow. The Company's liquidity assessment takes into account a comfortable debt repayment schedule in the next three years, as well as a sufficient amount of cash held in the Company's accounts and undrawn credit lines. To assess the FCF margin of construction companies, ACRA adjusts the free cash flow by the amount of expenses funded through project finance arrangements. According to ACRA's estimate, the weighted average adjusted FCF margin for the period from 2019 to 2024 will be 2.3%.
Key assumptions
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Projects completion and sales as planned.
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ACRA's estimates include only projects being constructed and designed in accordance with the Company’s current financial plan.
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No significant decline in prices in the primary real estate markets of the Company's regions of presence in 2022–2024.
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:
- A sustainable decline in the weighted average ratio of adjusted net debt to FFO before net interest below 1x, and the weighted average ratio of FFO before net interest to net interest exceeding 8x, and an expansion of the Company's current construction portfolio to 2 mln sq. m.
A negative rating action may be prompted by:
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The weighted average ratio of FFO before net interest to net interest declining below 5x;
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Decrease in residential real estate prices by more than 15% in the primary markets of the Company's regions of presence in 2022–2024;
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Regulatory changes capable of having a material adverse effect on the Company’s performance.
Rating components
SCA: a-.
Adjustments: none.
Issue ratings
“Brusnika. Stroitelstvo i development” LLC (ISIN RU000A1048A9), maturity date: June 16, 2025, issue volume: RUB 4 bln — A-(RU).
“Brusnika. Stroitelstvo i development” LLC (ISIN RU000A102Y58), maturity date: April 1, 2024, issue volume: RUB 6 bln — A-(RU).
“Brusnika. Stroitelstvo i development” LLC (ISIN RU000A101HU5), maturity date: March 9, 2023, issue volume: RUB 4 bln — A-(RU).
Rationale. The issues represent senior unsecured debt of “Brusnika. Stroitelstvo i development” LLC. Due to the absence of either structural or contractual subordination of the issues, ACRA regards them as equal to other existing and future unsecured and unsubordinated debt obligations of the Company in terms of priority. According to ACRA’s methodology, the recovery rate for unsecured debt belongs to category I, therefore the credit ratings of the issues are equivalent to that of the Company, i.e. A-(RU).
Regulatory disclosure
The credit ratings of “Brusnika. Stroitelstvo i development” LLC and the bonds issued by “Brusnika. Stroitelstvo i development” LLC (ISIN RU000A1048A9, RU000A102Y58, RU000A101HU5) have 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 Methodology for Assigning Credit Ratings to Individual Issues of Financial Instruments on the National Scale for the Russian Federation was also applied to assign credit ratings to the above issues.
The credit ratings of “Brusnika. Stroitelstvo i development” LLC and the bonds issued by “Brusnika. Stroitelstvo i development” LLC (ISIN RU000A1048A9, RU000A102Y58, RU000A101HU5) were published by ACRA for the first time on March 3, 2020, December 14, 2021, April 5, 2021, and March 12, 2020, respectively. The credit rating of “Brusnika. Stroitelstvo i development” LLC and its outlook, as well as the credit ratings of the bonds issued by “Brusnika. Stroitelstvo i development” LLC (ISIN RU000A1048A9, RU000A102Y58, RU000A101HU5), are expected to be revised within one year following the publication date of this press release.
The credit ratings were assigned based on data provided by “Brusnika. Stroitelstvo i development” LLC, information from publicly available sources, and ACRA’s own databases. The credit ratings are solicited, and “Brusnika. Stroitelstvo i development” LLC participated in their assignment.
In assigning the credit ratings, 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 ancillary services to “Brusnika. Stroitelstvo i development” LLC. No conflicts of interest were identified in the course of credit rating assignment.
