The credit rating of Glorax LLC (hereinafter, the Company, or Glorax) is based on the medium operational risk profile, medium assessments of profitability, leverage, and liquidity, and a very high debt service indicator. The Company’s rating is constrained by very high industry risk and a below-average assessment of business size.
Glorax is a successful player in Saint Petersburg’s residential real estate market, and also carries out projects in Moscow and Nizhny Novgorod. According to the Agency’s assessments, the Company’s current construction portfolio will amount to 233,000 sq. m by the end of the year.
key assessment factors
Industry risk is assessed as very high due to the pronounced cyclical nature of the construction industry, high amount of overdue payments, and the substantial number of companies that have defaulted over the last five years. The industry the Company belongs to is a strong factor limiting its credit rating.
Results in 2021 and expectations for 2022. The Company was reorganized in 2020 due to the separation of part of the business and the division of the Company between its owners. This impacted new project deadlines, which led to a noticeable decline of the volume of commissioning and had a negative impact on the Company’s financial performance in 2021.
The Company’s sales during the crisis period of Q2–Q3 2022 demonstrated rather high stability and declined a lot less than sales in similar segments for the market as a whole. Sales in the premium segment in Saint Petersburg (the Company’s main region of presence) declined by 18% in physical terms compared to 54% for the market overall, while sales in the business segment shrank by 36% compared to 69% for the market overall. These better-than-market sales are explained by, among other things, the relaunch of agent sales in early 2021 and previous investments in the ‘digital office’, which enabled the Company to increase the share of deals concluded online to more than 92%. ACRA expects the Company’s financial indicators to improve substantially in 2022 compared to 2021.
Medium leverage and very high debt service. In its calculation of the ratio of net debt to FFO before interest and taxes, ACRA adjusted the total debt by the amount raised as part of escrow-backed project finance and fully secured by buyers’ funds held in escrow accounts. The Agency estimates the weighted average ratio of adjusted net debt to FFO before net interest payments for 2020 to 2025 at 1.2x. The weighted average ratio of adjusted total debt to capital for the same period is estimated by the Agency at 1.2x. When assessing leverage, ACRA also took into account the peak of repayment of general corporate debt in 2023 coupled with no escrow account disclosures in that year. ACRA assesses the weighted average ratio of FFO before net interest payments to net interest payments for 2020 to 2025 at 8.1x.
The Company’s medium liquidity assessment stems from the peak general corporate debt repayment period in 2023 coupled with an expected negative adjusted free cash flow (FCF) during that period. ACRA expects a significant improvement of liquidity as the Company’s FCF grows as a result of escrow account disclosures beginning in 2024.
key assumptions
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Fulfillment of the planned terms of construction and sales;
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ACRA only took into account projects under construction and projects expected to be completed in accordance with the Company’s financial plan;
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No substantial decline in real estate prices in the primary market of Saint Petersburg in 2023–2025.
potential outlook or rating change factors
The Stable outlook assumes that the rating will highly likely stay unchanged within the 12 to 18-month horizon.
A positive rating action may be prompted by:
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Weighted average FFO before net interest payments and taxes exceeding RUB 5 bln, the current construction portfolio going above 500,000 sq. m, and the weighted average adjusted FCF margin turning positive;
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Improved diversification of the Company’s projects amid simultaneous growth of own sales to above 50%.
A negative rating action may be prompted by:
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Weighted average ratio of FFO before net interest payments to net interest payments falling below 8x;
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Weighted average ratio of adjusted net debt to FFO before net interest payments growing above 2x;
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Real estate prices in the primary market of Saint Petersburg falling by more than 15% in 2023–2025;
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Regulatory changes that entail potential material adverse effects on the Company’s performance.
rating components
Standalone creditworthiness assessment (SCA): bbb-.
Adjustments: none.
issue ratings
No outstanding issues have been rated.
regulatory disclosure
The credit rating has been assigned to Glorax LLC 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 Glorax LLC was published by ACRA for the first time on November 9, 2021. 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 Glorax LLC, information from publicly available sources, and ACRA’s own databases. The credit rating is solicited, and Glorax LLC participated in its assignment.
In assigning the credit rating, ACRA used only information, the quality and reliability of which were, in ACRA’s opinion, appropriate and sufficient to apply the methodologies.
ACRA provided no additional services to Glorax LLC. No conflicts of interest were discovered in the course of credit rating assignment.
