The credit rating of LEGENDA LLC (hereinafter, the Company) is based on its medium assessment of operational risk profile, low leverage, high coverage, high profitability, and strong liquidity. The rating is constrained by the very high industry risk (residential construction), and the below medium size of the Company.
LEGENDA LLC is a residential developer focusing in residential projects, mostly in the upper price segment, in St. Petersburg. It plans to enter the Moscow market in the nearest future. According to the Company, the volume of its current construction-in-progress is 172,600 sq. m.
Key assessment factors
Industry risk is assessed as very high due to the pronounced cyclical nature of the industry, high amount of overdue payments, and substantial number of companies that have defaulted over the last five years. Therefore, industry risk is a strong factor that limits the Company’s credit rating.
The medium assessment of the operational risk profile is a result of medium assessments of the market position, business profile and corporate governance, as well as a very strong assessment of geographical diversification. According to the Agency's estimates, the Company is a successful player in the moderately concentrated primary housing market in St. Petersburg: in H1 2023, it ranked fourth in this segment in terms of revenue with a share of about 3.6% (the Company is also a leader in the high-price housing market). All current and planned projects of the Company are located in St. Petersburg and Moscow. The Agency considers these markets as the most capacious, stable and highly marginal, and therefore geographical diversification, according to ACRA’s methodology, is assessed as high.
The Company’s portfolio of projects is well diversified in terms of their number, but in general, the Agency estimates the diversification of projects at a medium level, since in 2023–2025, in ACRA’s opinion, the largest project will account for more than 25% of sales. The Company subcontracts construction work and acts as an ECPM contractor and technical supervisor. A significant competitive advantage is the Company’s own design capabilities, and the variety of planning solutions allows it to meet the needs of consumers to a greater extent, which has a favorable effect on profitability. The terms and conditions of project implementation are assessed as adequate.
In the Agency’s opinion, the Company's strategy is successful, consistent and allows it to strengthen its market positions. The management structure is assessed as strong. Risk management and financial transparency received adequate assessments. The group structure is moderately complicated, which reflects the specifics of the housing construction industry.
The high profitability is ensured by the high product quality, cost control at all project stages, and a thorough analysis of the acquired project sites. The weighted average FFO before net interest and taxes margin for the period from 2020 to 2025 is estimated by the Agency at 27.7%.
Low leverage and high coverage assessments. When estimating the ratio of net debt to FFO before interest and taxes, ACRA adjusts the total debt by the amount of project finance debt secured by buyers’ escrow accounts. In 2022–2023, against the background of significant investments in new projects (including those related to entering the Moscow market), the Company's leverage peaked: the ratio of adjusted net debt to FFO before net interest exceeded 4.0x. At the same time, growing sales in new projects will contribute to a noticeable increase in the Company's revenue and FFO, which will squeeze the relative indicators of the leverage. The weighted average ratio of adjusted net debt to FFO before net interest for 2020–2025 is estimated by the Agency at 3.1x. The qualitative assessment of the leverage is very high due to a comfortable debt repayment schedule and high diversification of the portfolio of lenders. The weighted average ratio of FFO before net interest to net interest for 2020–2025 is estimated by ACRA at 5.5x.
The strong liquidity assessment is based on the comfortable debt repayment schedule, an expected growth of cash inflow due to release of escrow accounts, and a significant volume of undrawn credit lines.
Key assumptions
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Projects completion and sales as planned.
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ACRA's estimates include only projects being constructed and designed in accordance with the Company’s current plans.
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No significant decline in prices in the primary real estate markets of St. Petersburg and Moscow 2023–2025.
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Annual average dividend payments at RUB 40 mln 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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The weighted average FFO before net interest and taxes exceeding RUB 5 bln, the weighted average ratio of adjusted net debt to FFO before net interest declining below 2.0x, and the weighted average ratio of FFO before net interest to net interest exceeding 8.0x.
A negative rating action may be prompted by:
- The weighted average ratio of adjusted net debt to FFO before net interest exceeding 3.5x and the weighted average ratio of FFO before net interest to net interest declining below 5.0x.
Rating components
SCA: bbb.
Support: none.
Issue ratings
No outstanding issues have been rated.
Regulatory disclosure
The credit rating of LEGENDA LLC has 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 credit rating has been assigned to LEGENDA LLC for the first time. The credit rating of LEGENDA LLC is 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 LEGENDA LLC, information from publicly available sources, and ACRA’s own databases. The credit rating is solicited, and LEGENDA 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 ancillary services to LEGENDA LLC. No conflicts of interest were identified in the course of credit rating assignment.
