The credit rating of International Medical Center of Biomaterials Processing and Cryostorage Public Joint-Stock Company (hereinafter, IMCB, Gemabank, or the Company) has been affirmed due to it maintaining very high profitability, strong liquidity, and a very strong cash flow. The financial risk profile assessment is constrained by the small size of the Company, as well as its medium leverage and coverage. In terms of the operational risk profile, ACRA notes that Gemabank continues to hold leading positions in the narrow industry segment of banking of human cells and tissues, despite declining demand in the bioinsurance market on the back of demographic and economic factors. The Agency also takes into account the medium assessment of corporate governance and very high geographic diversification.
IMCB is a subsidiary of PJSC “HSCI” (hereinafter, HSCI or the Group) and is the guarantor of its bonds. IMCB is one of the main sources of financing for the projects of HSCI, therefore, when assessing the Company’s creditworthiness, the Group’s impact on it was taken into account.
IMCB is the largest bank for personal storage of hematopoietic and mesenchymal cord blood stem cells in Russia for the treatment of critical illnesses. IMCB was founded in 2014 in order to more effectively manage HSCI’s Gemabank project. The Company owns the exclusive rights to the Gemabank and Gemaskrin trademarks.
KEY ASSESSMENT FACTORS
Medium operational risk profile assessment. The weak business profile stems from the low diversification of products and services as the Company is mainly focused on providing goods and services for the collection, isolation, cryopreservation, and storage of cord blood and umbilical cord cells. At the same time, IMCB continues to work on expanding its line of products and services, in particular, developing drugs to treat blood diseases using hematopoietic stem cells, and also providing genetic testing services. As of the end of 2022, Gemabank had over 38,000 samples in storage, thanks to which its share in the Russian market was around 40%. IMCB operates in 85 Russian cities, and has representatives in Kazakhstan and Armenia.
Very high profitability and small size of business. Gemabank’s revenues amounted to RUB 255 mln in 2022 (a 4% decline year-on-year), while FFO before net interest payments and taxes was RUB 118 mln (11% lower than the year before). Weighted average FFO before net interest payments and taxes for 2020 to 2025 is RUB 127 mln, which corresponds to a small size of business as per ACRA’s methodology. The predominantly long-term nature of contracts for the storage of biomaterials (up to 20 years) provides the Company with stable revenue for cell storage services. Given the unfavorable demographic situation in the country, as well as an acceleration of inflation, the Agency does not expect IMCB’s revenues to increase substantially in the forecast period (from 2023 to 2025). However, it does assume the possibility of revenues growing due to an expansion of the geography of operations and a moderate increase in the prices of Gemabank’s services. The weighted average FFO margin before net interest payments and taxes is 51% for 2020–2025. ACRA assumes it will exceed 50% in the forecast period.
Medium leverage and payment coverage. There are two bonds in the Company’s loan portfolio. ACRA does not include the guarantee provided by IMCB for the parent company’s bond as debt because it takes it into account in the assessment of HSCI. The presence of this guarantee coupled with financing the development of the Group’s projects using issued loans and significant dividend payments is reflected in the assessment of the Group’s influence on Gemabank by reducing the Company’s standalone creditworthiness assessment (SCA) by two notches.
The ratio of total debt to FFO before net interest payments was 2.2x in 2022 (vs. 0.5x in 2020–2021). In the absence of raising additional financing, the Agency expects that in 2023–2025, this indicator may range from 2.0x to 2.4x. Growth of the Company’s total debt after the placement of bonds worth RUB 200 mln in 2022 led to a decline in coverage — the ratio of FFO before net interest payments to interest payments was 3.9x in 2022. In the forecast period from 2023 to 2025, this indicator will be 3.0–4.0x according to ACRA’s estimates.
Strong liquidity and very strong cash flow. IMCB’s liquidity is assessed as high (the weighted short-term liquidity ratio is 1.5). The qualitative liquidity assessment takes into account the peak debt repayment period in the long term (bonds are to be repaid in 2027), while bonds are the sole source of financing. In the past, the share of capital expenditures in the Company’s revenues have amounted to 1–2%, and may increase to 4–5% from 2023 to 2025 due to an expansion of operations and purchases of cryoequipment to store samples. If the Company’s revenues decrease by the end of 2023 and in 2024, and dividends are paid in accordance with the approved dividend policy, Gemabank’s free cash flow (FCF) may turn negative, which will lead to a significant decrease in the FCF margin assessment.
Medium corporate governance assessment. The Company compiles IFRS financial statements on a semi-annual basis (Gruppa Finansy LLC is the auditor). Its results are also consolidated and published in the IFRS financial statements of HSCI. ACRA positively assesses the presence of a board of directors at the Company, the regulation of key procedures, and the publication of key operational and financial indicators.
KEY ASSUMPTIONS
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No additional financing in 2023;
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Capital expenditures in the forecast period as per the financial model presented to ACRA;
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Dividend payments at 100% of net profits in 2023–2025;
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The Group repaying the loan issued by IMCB in 2027.
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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HSCI’s credit rating being upgraded;
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Weighted average FFO before net interest payments and taxes exceeding RUB 500 mln;
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Weighted average ratio of total debt to FFO before net interest payments falling below 2.0x coupled with the weighted average ratio of FFO before net interest payments and taxes to net interest payments exceeding 6.0x.
A negative rating action may be prompted by:
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HSCI’s credit rating being downgraded;
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Weighted average FFO margin before net interest payments and taxes falling below 10%;
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Weighted average ratio of total debt to FFO before net interest payments exceeding 5.0х;
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Weighted average ratio of FFO before net interest payments and taxes to net interest payments declining below 1.0х;
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Weighted average FCF margin falling below 2%;
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Significant deterioration of the liquidity profile.
RATING COMPONENTS
SCA: bbb.
Group’s influence: minus two notches from the SCA.
ISSUE RATINGS
No outstanding issues have been rated.
REGULATORY DISCLOSURE
The credit rating has been assigned to International Medical Center of Biomaterials Processing and Cryostorage Public Joint-Stock Company 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, Methodology for Analyzing Rated Entities Associated with a State or a Group, and the Key Concepts Used by the Analytical Credit Rating Agency within the Scope of Its Rating Activities.
The credit rating of International Medical Center of Biomaterials Processing and Cryostorage Public Joint-Stock Company was published by ACRA for the first time on July 20, 2022. 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 International Medical Center of Biomaterials Processing and Cryostorage Public Joint-Stock Company, information from publicly available sources, and ACRA’s own databases. The credit rating is solicited and International Medical Center of Biomaterials Processing and Cryostorage Public Joint-Stock Company 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 International Medical Center of Biomaterials Processing and Cryostorage Public Joint-Stock Company. No conflicts of interest were discovered in the course of credit rating assignment.
