The credit rating of PJSC Magnit (hereinafter, Magnit, or the Company) is based on its very strong operating risk profile, very large size, high profitability, and very strong liquidity.
Magnit is one of the two largest retail market players in Russia. The Company is present in all federal districts of Russia except the Far Eastern Federal District.
key ASSESSMENT factors
Strong corporate governance. The Agency has downgraded the assessment of the Company’s management structure due to the Company’s limited opportunities to carry out certain corporate procedures. This is currently expressed, for example, in restrictions on making dividend payments, which must be approved by the Company’s board of directors. Risk management procedures are regulated and minimize all major types of risk. The structure of the Company is moderately complex, with the main cash-generating operations concentrated in a single legal entity. Financial transparency is very high.
Very large business size and high profitability. According to ACRA’s estimates, Magnit maintained high revenue growth rates in 2022 (vs. 2021). The Agency notes that the Company’s revenues grew due to, among other things, a period of rush demand in February and March 2022 and high food inflation in Russia. According to ACRA’s assessments, the FFO margin before fixed payments and taxes in 2022 was at the level of 2021.
Magnit’s very strong business profile is driven by the low cyclicality of demand for products (the Company’s core activity is retail trade in groceries and staple goods), very strong diversification by store format, as well as high brand strength. The Company is continuing to actively develop the convenience store segment as one of the most in-demand retail formats in the market. Convenience stores, drugstores and discounters are the fastest growing formats. In May 2023, Magnit opened its first hard discount store, B1, in Moscow.
Medium leverage and coverage. As of the end of 2021, the ratio of total debt to FFO before net interest payments was 2.3x, and the ratio of adjusted total debt to FFO before fixed payments was 4.2x. FFO before net interest payments to interest payments was 7.9x in 2021 and the ratio of FFO before fixed payments to fixed payments was 2.1x. According to ACRA’s assessments, at the end of 2022, leverage was comparable to its level in 2021. The Agency also notes that debt metrics (taking into account net debt) were at a lower level.
Very high liquidity and high cash flow assessments. Magnit’s very high liquidity assessment is due to the presence of a significant amount of committed credit lines. ACRA notes wide access to external sources of funding and a sufficient degree of diversification of the Company’s creditor base.
KEY ASSUMPTIONS
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Successful implementation of the Company’s strategy;
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Absence of M&A transactions that may significantly affect the Company’s business.
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:
- Weighted average ratio of adjusted total debt to FFO before fixed payments declining below 2.0x and ratio of FFO before fixed payments to fixed payments exceeding 2.5x.
A negative rating action may be prompted by:
- Ratio of FFO before fixed payments to fixed payments falling below 1.5x.
RATING COMPONENTS
Standalone creditworthiness assessment (SCA): aa+.
Support: none.
issue ratings
Bonds of PJSC Magnit, series BO-001P-05 (RU000A1036M9); maturity date: May 29, 2024, issue volume: RUB 10 bln — AA+(RU).
Bonds of PJSC Magnit, series BO-002P-04 (RU000A1036H9); maturity date: May 29, 2024, issue volume: RUB 10 bln — AA+(RU).
Bonds of PJSC Magnit, series BO-004Р-01 (RU000A105KQ8); maturity date: December 2, 2025, issue volume: RUB 20 bln — AA+(RU).
Bonds of PJSC Magnit, series BO-004Р-03 (RU000A105TP1); maturity date: August 3, 2028, issue volume: RUB 30 bln — AA+(RU).
Rationale. The bond issues represent senior unsecured debt of PJSC Magnit. Due to the absence of either structural or contractual subordination of the issues, ACRA ranks them as equal to other existing and future unsecured and unsubordinated debt obligations of the Company. According to ACRA’s calculations, the level of recovery for the senior unsecured debt belongs to category I, and therefore the bond issues are rated on par with PJSC Magnit — AA+(RU).
REGULATORY DISCLOSURE
The credit ratings have been assigned to PJSC Magnit and the bond issues (RU000A1036M9, RU000A1036H9, RU000A105KQ8, RU000A105TP1) of PJSC Magnit 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 Financial Instruments under the National Scale for the Russian Federation was also applied to assign credit ratings to the above issues.
The credit rating of PJSC Magnit was published by ACRA for the first time on September 23, 2019. The credit ratings of the bond issues (RU000A1036H9, RU000A1036M9, RU000A105KQ8, RU000A105TP1) of PJSC Magnit were published by ACRA for the first time on June 2, 2021, June 2, 2021, December 6, 2022, and February 9, 2023, respectively. The credit rating of PJSC Magnit and its outlook and the credit ratings of the bond issues (RU000A1036H9, RU000A1036M9, RU000A105KQ8, RU000A105TP1) of PJSC Magnit 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 PJSC Magnit, information from publicly available sources, and ACRA’s own databases. The credit ratings are solicited and PJSC Magnit participated in their assignment.
In assigning the credit ratings, 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 PJSC Magnit. No conflicts of interest were discovered in the course of credit rating assignment.
