The outlook on the credit rating of Rissa Investments Limited (hereinafter, the Company, or the Group) has been changed to Stable due to a growth of the share of the Russian business segment and positive trends in the financial performance, which have pushed down the level of uncertainty specific for the Company earlier. The Group's credit rating is based on the persistently medium business profile assessment and leading market positions, which is a result of the presence of well-recognized brands in the product portfolio.

Regardless a decline in the sales in natural terms in 2022, the Group's financial risk profile assessment has not changed, and it hinges on the medium leverage, high coverage and very high profitability assessments. Weak free cash flow (FCF) is still a rating-constraining factor.

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

Passage of an acute phase of uncertainty after the recovery of the operations of the Georgian segment and the continuation of production by the Ukrainian cluster. According to preliminary unaudited results, the Group's revenue decreased by 8% to RUB 38 bln by the end of 2022. The factor that made it possible to avoid a more significant decrease in revenue following the suspension of operations of the Borjomi plants and a decrease in production in Ukraine was the Russian segment, whose share in revenue, according to the Agency's estimates, increased from 47% in 2021 to 59% by the end of 2022. Further growth of the Russian segment in the coming years may be facilitated by the production and logistics complex launched in early 2022 in the Moscow Region. ACRA also positively assesses the continued operations of the Ukrainian segment, which, despite the reduction in the volume of production volumes, remains significant for the Group due to its leading position in the local market.

According to ACRA's calculations, FFO before net interest and taxes amounted to RUB 8.3 bln by the end of 2022, which corresponds to the indicator's margin at 22%. The growing share of the more predictable Russian segment may allow the Company to maintain a high level of FFO before net interest and taxes margin (19–21%) in 2023–2025, which is the reason for changing the outlook to Stable.

Persistently medium business profile and leading market positions. The Company is among the three leaders of the bottled water market in the Russian Federation and holds leading positions in the Ukrainian market, which is still important for the Group. In the current conditions, the Company strives for growth through geographical expansion, primarily to the countries of Central Asia, and it aims to increase the product diversification using various flavors and lemonades. Regardless the presence of a significant number of competing products, the rating is supported, in the Agency's view, by the strong brand recognition and the persistently moderate growth in the consumption of bottled drinking water.

The leverage is still medium. The Group's debt structure has remained stable: the core of the debt portfolio is a bond issue, as well as loans from Sberbank (ACRA rating — AAA(RU), outlook Stable) and JSC "ALFA-BANK" (ACRA rating — AA+(RU), outlook Stable). By the end of 2022, according to the Group's preliminary consolidated financial statements, the ratio of total debt to FFO before net interest was 2.2x, and the ratio of FFO before net interest to interest was 6.0x, which corresponds to the medium leverage. In 2023, ACRA expects these ratios to remain at levels close to 2022 and to improve in 2024–2025 as the debt load decreases.

The liquidity assessment has remained high. In February 2024, the Company will have to pass an offer on its bond issue, which accounts for 42% of its debt. According to the Group's estimates, it has sufficient internal and external sources of liquidity for the successful completion of this offer. Other debt liabilities are expected to be paid relatively smoothly. Due to capex cuts following suspension of some investment projects, FCF, according to ACRA's estimates, turned out to be weakly positive by the end of 2022. The Agency notes that the Company has passed the capex peak in 2020–2021, which should provide additional liquidity support in 2023–2025.

key assumptions

  • Annual average prices for the Company's products growing on par with the inflation in 2023–2025.

  • Gradual recovery and growth of production volumes by 4–8% annually in 2023–2025.

  • Maintaining the current geography of operations.

  • Capex program maintained at 10% of annual revenues in 2023–2025.

  • No return to dividend payments until 2024.

  • Access to external liquidity sources.

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 total debt to FFO before net interest declining below 1.0x;

  • Weighted average ratio of FFO before net interest to interest growing above 8.0х;

  • Sustainably positive FCF margin.

A negative rating action may be prompted by:

  • Weighted average ratio of total debt to FFO before net interest growing above 3.5x;

  • Weighted average ratio of FFO before net interest to interest declining below 2.5х;

  • FFO before fixed charges and taxes margin falling below 12%;

  • Any dividend payments in case the FCF is back in the negative area;

  • Changes to the structure and membership of the Group which may lead to a deterioration of financial performance and infringement of creditors’ rights;

  • 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. In accordance with 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).

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 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 were, 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.

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