The credit rating of “Sibenergomash — BKZ” LLC (hereinafter, Sibenergomash, the Factory, or the Company) has been upgraded following an upgrade of the business profile assessment due to expanding order backlog and better leverage assessment of the Company.
The credit rating outlook has been changed to Positive to reflect the Agency’s expectations regarding further improvement of the financial risk profile due to expansion of the Company’s operations and a relatively successful completion of the change in the Company’s owners after VEB.RF sold its equity share and the Factory (including movable and immovable property) in a single lot. ACRA views positively the entry of a new strategic investor and its potential involvement in shaping the Company’s key lines of development, strategic goals and objectives.
The credit rating is based on medium assessments of the Company’s market position, business profile, geographic diversification, and corporate governance. The financial risk profile assessment takes into account the low leverage and high coverage, as well as the low cash flow and small size of the Company.
Sibenergomash specializes in the production of high capacity power boilers, industrial fans and smoke extractor fans, vessels and heat exchange equipment, and press forging products. The Factory supplies equipment to large thermal power plants, and the facilities of metallurgy, petrochemistry and other industries. Besides designing and manufacturing new equipment, the Factory produces components for the reconstruction of existing boilers. The Company’s annual production (technological potential) amounts to 22,000 tons of products. The Company employs 836 people.
key assessment factors
Medium business profile assessment is based on a stable and growing order backlog, which currently amounts to about RUB 14 bln. Steady demand for equipment for the thermal energy sector is determined by the Capacity Supply Agreement 2 program. As a positive factor, ACRA notes a high level of advance payments as part of contract performance, which reduces the need to borrow funds. Revenue is generated by the manufacture of boiler equipment, exhaust fans, and vessels. The Company is a significant player in the Russian power equipment market, and also exports products. The share of export revenues in 2022 was around 9%.
New owner of the Company. An important event for the further development of the Factory is the completion of the procedure to find a new owner. Sibenergomash, which was owned by the VEB.RF group, has been purchased by Stroyenergoactiv LLC. A 100% share in the Factory’s charter capital was sold, as well as property (moveable and immovable), which was used by the Company under lease contracts. ACRA positively assesses the entry of a dedicated investor and the expected improvement in the asset ownership structure of the Company.
Small size of the Company and medium profitability. In 2022, revenues grew by 28.1%, while FFO before net interest and taxes grew to RUB 204 mln. The FFO margin before net interest and taxes was 7.2% in 2022 vs. 9.2% in 2021.
Low leverage. The ratio of total debt to FFO before net interest in 2022 remained the same as in 2021 (1.4x). In 2023, the Agency expects an increase in the total debt, which, on the back of growing FFO before net interest, will slightly increase the ratio of total debt to FFO before net interest. The Company’s credit portfolio includes bonds, loans raised to finance production under signed contracts, and lease liabilities. Interest coverage is high: the weighted (for 2020 to 2025) estimate of FFO before net interest to interest is 6.3x.
The cash flow is low due to the volatile FCF margin over the past three years. In 2022, the margin was 23% vs. -11% in 2021 and about zero in 2020. These fluctuations are caused by the impact of changes in the working capital, since the Company’s production cycle is long, and the share of contract advance payments is growing. The Company has a fairly balanced repayment schedule with a peak in 2025. Committed limits under open credit lines serve additional sources of liquidity for Sibenegromash.
key assumptions
-
Average annual growth of revenue at no less than 15% in 2023–2025.
-
Capital expenditures in line with the Company’s plans in 2023–2025.
-
No dividend payments.
potential outlook or rating change factors
The Positive outlook assumes that the rating will highly likely be upgraded within the 12 to 18-month horizon.
A positive rating action may be prompted by:
-
Weighted (for 2020–2025) FFO before net interest and taxes exceeding RUB 500 mln;
-
Weighted (for 2020–2025) ratio of total debt to FFO before net interest declining below 1.0x;
-
Weighted (for 2020–2025) ratio of FFO before net interest to net interest exceeding 8.0x.
A negative rating action may be prompted by:
-
FFO before net interest to interest falling below 2.5x;
-
FFO margin before interest and taxes declining below 5% and worse liquidity.
rating components
Standalone creditworthiness assessment (SCA): bb+.
Support: none.
issue ratings
No outstanding issues have been rated.
regulatory disclosure
The credit rating has been assigned to “Sibenergomash — BKZ” 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 “Sibenergomash — BKZ” LLC was published by ACRA for the first time on September 14, 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 “Sibenergomash — BKZ” LLC, information from publicly available sources, and ACRA’s own databases. The credit rating is solicited, and “Sibenergomash — BKZ” 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 “Sibenergomash — BKZ” LLC. No conflicts of interest were discovered in the course of credit rating assignment.
