The outlook on the credit rating of Rissa Investments Limited (hereinafter, the Company, or the Group) has been changed due to the unfavorable situation in the Company’s key sales markets, as well as the problems faced by IDS Borjomi Georgia LLC with receiving foreign currency revenues, which have led to the Group suspending the operations of its Borjomi plants. Sales of Borjomi accounted for around 40% of the Group’s revenues and therefore a long suspension of production of this brand may result in growth of consolidated leverage.
ACRA retains its average assessment of the Company’s business profile and continues to highly rate its market position, which is largely due to the presence of well-known brands in the Group’s portfolio. Despite falling, capital expenditures continue to result in a negative free cash flow (FCF).
Rissa Investments Limited is a holding company that consolidates bottled water production assets in Russia, Georgia, and Ukraine. The portfolio of the Company’s brands includes Borjomi, Saint Spring, and others.
key assessment factors
Falling revenues in 2022 and an uncertain forecast for 2023–2024. In 2021, the Group’s revenues grew to RUB 41 bln (+24%). Sales of Borjomi accounted for around 40% of the Group’s consolidated revenues, while sales of local Russian and Ukrainian brands accounted for around 25% each. However, in 2022, the Company has faced difficulties in selling its Ukrainian segment products, as well as Borjomi. ACRA assumes that in the event of a relatively quickly resolution of the difficulties facing IDS Borjomi Georgia LLC, the Company may be able to avoid falling sales by volume thanks to a sufficient supply of ready products. The Agency assesses the possible decline of sales of Ukrainian local brands at 10–20%, while the performance of the Russian segment by volume, in ACRA’s opinion, will be similar to 2021. The Agency’s base case scenario foresees revenues at around the 2021 level as prices grow due to inflation. Future results will primarily depend on geopolitical factors and sanctions.
ACRA assesses the Company’s FFO before net interest payments and taxes in 2021 at RUB 8 bln, which continues to correspond to a medium assessment of business size as per ACRA’s classification. FFO profitability before net interest payments and taxes stood at 19% in 2021. ACRA assumes that FFO before net interest payments and taxes may fall by 3–5% in 2022 while maintaining the level of profitability.
Higher leverage. The Group’s debt as of December 31, 2021 was around RUB 16 bln. In 2021, the Company placed ruble-denominated bonds, having refinanced the foreign currency loans of the Georgian segment, and thereby brought the foreign currency debt structure into line with the revenue structure. Besides the bond issue, which amounts to 42% of the debt portfolio, loans from Sberbank (ACRA rating AAA(RU), outlook Stable) and JSC “ALFA-BANK” (ACRA rating AA+(RU), outlook Positive) account for significant shares of the portfolio — 35% and 11%, respectively.
The Group’s total ratio of debt to FFO before net interest payments for 2021 increased from 1.7x to 2.2x, which corresponds to medium leverage. This is mainly due to the financing of the capital expenditure program. ACRA assumes that this indicator will be within the range of 2.0–2.5x for 2022. As leverage and interest rates grow (most of the debt financing was raised at floating rates), interest payment coverage is declining — the ratio of FFO before net interest payments to interest payments fell to 6.2x in 2021, and ACRA expects that it may approach 3.0x in 2022.
Significant pressure on liquidity due to anticipated negative FCF. FCF was negative in 2021 due to a peak in capital expenditures (ratio of CAPEX to revenues at 24% in 2021) and payment of dividends. In 2022, the Group plans to suspend dividend payments and substantially curtail its capital expenditure program, which should provide considerable support to FCF, which, according to ACRA’s assessments continues to be negative this year. This in turn will put considerable pressure on liquidity. The unfavorable macroeconomic situation will negatively impact the Group’s access to liquidity sources. At the same time, the Company has stated the availability of around RUB 2 bln in undrawn credit lines. Major repayment of debt is expected in 2024, during which a put option for the bond issue is to be exercised. The rest of the debt is repaid relatively evenly.
key assumptions
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Maintaining production volumes of the Georgian segment in 2022 at the 2021 level and a rather fast restart of operations at the Borjomi plants;
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Maintaining production volumes of the Russian segment in 2022 at the 2021 level;
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Production volumes of the Ukrainian segment falling by 10–20% in 2022 compared to 2021;
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Capital expenditures program reduced to 10–20% of revenues in 2022–2024;
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No dividend payments until complete recovery of all the Group’s sales markets;
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Access to external liquidity sources.
potential outlook or rating change factors
The Developing outlook indicates a variety of trends: the rating may stay unchanged, be upgraded or downgraded.
A positive rating action may be prompted by:
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Full resumption of operations at all the Group’s plants;
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Weighted average ratio of total debt to FFO before net interest payments declining below 2.0x;
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Weighted average ratio of FFO before net interest payments to interest payments growing above 5.0х;
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Positive FCF profitability.
A negative rating action may be prompted by:
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Operation of Borjomi plants suspended for an extensive period of time;
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Weighted average ratio of total debt to FFO before net interest payments growing above 3.5x;
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Weighted average ratio of FFO before net interest payments to interest payments declining below 2.5х;
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FFO profitability before fixed payments and taxes falling below 12%;
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Any dividend payments before the complete recovery of all the Group’s sales markets;
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Changes to the structure and membership of the Group which may lead to a deterioration of financial performance and infringement of creditors’ rights;
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Worsened access to external liquidity sources.
rating components
Standalone creditworthiness assessment (SCA): a-.
Support: none.
issue ratings
Bond issued by Borjomi Finance LLC, series 001P-01 (RU000A102SK1), maturity date: February 20, 2026, issue volume: RUB 7 bln — A-(RU).
Rationale. The issue represents senior unsecured debt of Borjomi Finance LLC, a subsidiary of Rissa Investments Limited. The credit rating is based on a guarantee from Rissa Investments Limited, public irrevocable offers from the Group’s trading companies (IDS Borjomi Beverages Co. N. V., Curacao, and LLC “IDS Borjomi (Moscow)”), its plants in Russia (LLC “Aqua Star” (Kostroma) and LLC “Edelweiss L” (Lipetsk)), and Georgia-based IDS Borjomi Georgia LLC. Despite the existence of suretyships from the key operating companies of Rissa Investments Limited, ACRA applied the detailed approach to assess the reimbursement rate due to a significant amount of secured debt and a noticeable time difference between the dates of bond purchases for different groups of offerors. According to this approach and the Agency’s methodology, the recovery rate for the issue is category II, and therefore the credit rating of the issue is equal to the credit rating of Rissa Investments Limited, i.e. A-(RU). Under the detailed approach, the Agency took into account the difficulties that IDS Borjomi Georgia LLC has come up against when making dollar-denominated settlements. In the event of a prolonged suspension of operations of the plants of the Georgian segment, ACRA may use the assets of the Russian segment alone to determine the reimbursement rate. These assets have a higher share of secured bank debt and higher leverage compared to the Group as a whole, which may lead to a downgrade of the issue rating relative to the Company’s rating.
regulatory disclosure
The credit ratings of Rissa Investments Limited and the bond (RU000A102SK1) issued by Borjomi Finance LLC, a subsidiary of Rissa Investments Limited, 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 the credit rating to the above issue.
The credit ratings of Rissa Investments Limited and the bond (RU000A102SK1) issued by Borjomi Finance LLC were published by ACRA for the first time on May 21, 2020 and February 26, 2021, respectively. The credit rating of Rissa Investments Limited and its outlook and the credit rating of the bond (RU000A102SK1) issued by Borjomi Finance LLC 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 Rissa Investments Limited, information from publicly available sources, and ACRA’s own databases. The credit ratings are solicited, and Rissa Investments Limited participated in their assignment.
Deviations from approved methodologies: the Geographical Diversification factor was assessed with a deviation from the Methodology for Credit Ratings Assignment to Non-Financial Corporations under the National Scale for the Russian Federation taking into account the geography of the Company’s operations and its key sales markets.
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 additional services to Rissa Investments Limited and Borjomi Finance LLC. No conflicts of interest were discovered in the course of credit rating assignment.