The credit rating of JSC MaximaTelecom (hereinafter, MaximaTelecom, the Company, or the Group) has been downgraded due a combination of factors, including weaker results in 2021 than ACRA anticipated, as well as lower FFO before fixed payments and taxes compared to the Agency’s expectations set out in the 2022 forecast model. The Negative outlook has been retained to reflect the Agency’s concerns about the approaching put option date (in H2 2023) of one of the bonds issued by the Group.
In other respects, MaximaTelecom’s rating is a combination of weak cash flow, small company size, strong business profile and market position, low profitability, medium liquidity, and the Company’s presence in economically developed regions.
MaximaTelecom develops digital solutions and carries out infrastructure projects for businesses and the state in key economic sectors such as transport, industrial production, urban services, housing and utilities, and other areas. The Company carries out major projects involving the creation of ICT infrastructure, systems integration, and develops digital products for smart cities and the digitalization of production based on data analysis, artificial intelligence, machine vision, video analysis, wireless communications, the Internet of Things, and additional reality, including Industria 4.0 tools. The Company deploys infrastructure and platform solutions in the metro systems of Moscow and Saint Petersburg, urban transportation systems, the rolling stock of leading Russian producers, depos and situation centers, and at production assets. MaximaTelecom is one of Russia’s systemically important IT enterprises.
key assessment factors
Very high leverage. The Company’s debt is mainly made up of two fixed-rate bond issues worth a total of RUB 5.5 bln. As of the end of 2021, the ratio of adjusted total debt to FFO before fixed payments, according to ACRA’s predictions, exceeded 5.0x (the boundary of the current factor assessment category) and reached 9.8x, while the ratio of FFO before fixed payments to fixed payments was 0.98x, which together indicate very high leverage. In view of the current contract base, ACRA assumes that these indicators may improve to 5.0–7.0x and 1.5–2.0x, respectively, in 2022. Further performance of MaximaTelecom’s leverage indicators will depend on the level of contracting and the profitability of these contracts. ACRA will closely monitor the Company’s contract base.
Medium liquidity and weak cash flow assessment. In H2 2023, MaximaTelecom will have a put option for the first bond issue amounting to RUB 3 bln. The current liquidity assessment continues to assume a proactive search for sources of liquidity required for the successful completion of the put option. ACRA is closely monitoring the Company’s liquidity profile and, in the event of a deviation from the indicated prerequisites, may adjust the assessment of the factor, which may lead to a rating revision. In 2021, free cash flow (FCF) was negative (the FCF margin was -20% on the back of dividend payments and excluding RUB 2.1 bln generated by the sale of a stake in MT-Technologies LLC). According to ACRA’s forecast, maintaining a negative value of the indicator in 2022–2023 may put pressure on the liquidity assessment.
Low assessment of size of business and low profitability. The Company’s revenues in 2021 amounted to RUB 8.8 bln, which is generally in line with ACRA’s forecast. Taking into account the current portfolio of contracts, MaximaTelecom’s revenues may increase substantially and reach RUB 18–20 bln in 2022. Most of this amount has already been secured by concluded contracts. MaximaTelecom’s profitability in 2021 was below ACRA’s projection — FFO profitability before fixed payments and taxes was 8%, while FFO before fixed payments and taxes amounted to RUB 681 mln, which corresponds to a low assessment of the Company’s size. According to the Agency’s estimates, in 2022 profitability may remain at a level similar to that of 2021. In 2023–2024, the performance of these indicators will depend on the budgets allocated by the main customers for digitalization of urban infrastructure, transport systems, and new business lines associated with digitalization of industrial sectors, and the profitability of these projects.
Strong business profile. Since 2020, the Company’s revenue structure has been dominated by digitalization projects in the urban environment, transport sector, and rolling stock. In the Agency’s opinion, the experience gained by the Company in implementing comprehensive automation projects in various urban services, production processes, and transport infrastructure, and the implementation of platform solutions at Russian enterprises may become an additional competitive advantage in developing its portfolio of projects. In the coming years, large cities, industrial enterprises and the transport sector will continue to invest in the digitalization of infrastructure and thereby increase efficiency through digital transformation, and this will have a positive effect on the prospects of this market. However, possible difficulties related to the acquisition of foreign telecoms equipment may influence these processes. The Company’s operations are focused on regions favorable for its business — the bulk of its proceeds comes from projects implemented in Moscow (ACRA rating AAA(RU), outlook Stable) and Saint Petersburg (ACRA rating AAA(RU), outlook Stable).
Revenue within RUB 18–20 bln in 2022;
Ratio of adjusted total debt to FFO before fixed payments within 5.0–6.0x;
FFO profitability before fixed payments and taxes within 5–7% this year;
Possibility of acquiring the necessary equipment for the Company to fulfill its contractual obligations;
Early refinancing of peak repayments in 2023.
potential outlook or rating change factors
The Negative outlook assumes that the rating will highly likely be downgraded within the 12 to 18-month horizon.
A positive rating action may be prompted by:
Weighted average ratio of adjusted total debt to FFO before fixed payments falling below 5.0x;
Weighted average ratio of FFO before fixed payments to fixed payments exceeding 3.0x;
Weighted average FFO before fixed payments and taxes exceeding RUB 5 bln;
Weighted FFO profitability before fixed payments and taxes exceeding 20%;
Positive weighted FCF profitability.
A negative rating action may be prompted by:
Weighted average ratio of FFO before fixed payments to fixed payments falling below 1.0x;
FFO profitability before fixed payments and taxes remaining below 10%;
Continued practice of dividend payouts amid high leverage;
Revenue falling below RUB 8 bln;
Considerable difficulties in acquiring equipment;
Downgrade in quantitative or qualitative assessments of liquidity.
Standalone creditworthiness assessment (SCA): bb+.
Bond issue JSC MaximaTelecom (RU000A101XD8), maturity date: July 14, 2026, put option date: July 18, 2023, issue volume: RUB 3 bln — BB+(RU).
Bond issue JSC MaximaTelecom (RU000A102DK3), maturity date: May 21, 2024, call option date: November 23, 2021, issue volume: RUB 2.5 bln — BB+(RU).
Rationale. The issues represent senior unsecured debt of MaximaTelecom. 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. ACRA applied the detailed approach to assess the level of compensation for losses. In accordance with this approach and the Agency’s methodology, the level of recovery for the issues is category II, and due to this the credit ratings of the issues are equivalent to that of the Company, i.e. BB+(RU).
The credit ratings have been assigned to JSC MaximaTelecom and the bonds (RU000A101XD8, RU000A102DK3) issued by JSC MaximaTelecom 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. The Methodology for Assigning Credit Ratings to Individual Issues of Financial Instruments on the National Scale of the Russian Federation was also applied to assign the credit ratings to the bond issues listed above.
The credit ratings of JSC MaximaTelecom and the bonds issued by JSC MaximaTelecom (RU000A101XD8, RU000A102DK3) were assigned by ACRA for the first time on February 26, 2020, July 21, 2020, and November 24, 2020, respectively. The credit rating of JSC MaximaTelecom and its outlook and the credit ratings of the bonds issued by JSC MaximaTelecom (RU000A101XD8, RU000A102DK3) 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 JSC MaximaTelecom, information from publicly available sources, and ACRA’s own databases. The credit ratings are solicited, and JSC MaximaTelecom 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 additional services to JSC MaximaTelecom. No conflicts of interest were identified in the course of credit rating assignment.