The credit rating of Tangent Pump Company Holdings Ltd. (hereinafter, Tangent Pump Company Holdings Ltd., the Company, the Group, or Borets) is based on its very strong business profile, which takes into account the stable contact base and low dependence on subcontracting and components, as well as strong geographic diversification, high corporate governance, and a medium market position. The financial risk profile assessment is based on very high profitability, strong assessments of liquidity, coverage, and cash flow, as well as the medium assessment of the size of the Company.
The outlook has been changed to Positive based on the Agency’s expectations regarding the further expansion of the geographic presence of Borets (production and service centers in key regions), and, as a result, growth in revenues from foreign clients, which will drive an improvement in the assessment of geographic diversification. The outlook also takes into account the improvement of the structure of the Company’s loan portfolio and gradual reduction in leverage.
Borets is a vertically integrated company that operates in the field of oil engineering. It specializes in developing, manufacturing, and servicing oil production equipment. The product range includes electric centrifugal and screw pumps, as well as horizontal pump units. The Russian Federation is the Company’s primary market. In addition, countries in the Middle East, North Africa and North America account for significant shares of the revenue structure.
KEY ASSESSMENT FACTORS
Strong operational risk profile. The Company occupies a leading position in the submersible electric centrifugal pump segment of the Russian market (according to the Group’s estimates, its market share is around 30%), and is a competitive player in the moderately concentrated international market. The Company has a stable contract base, as well as low dependence on subcontracting and components. Borets independently carries out all the necessary production processes and work (casting, including high-pressure casting, machining, and electroplating, thermal and welding work). In addition to production sites and service units, the Group has two research centers that specialize in developing new and modernizing existing equipment. The sales market is stable due to the large fleet of wells that use mechanized production and the active application of ESP (electric submersible pump) technology in new wells. The Group’s sales markets are well diversified. In 2022, the largest market (Russia) accounted for around 56% of revenues. Key export destinations include the United States, Colombia, Oman, Egypt, and Kuwait. Strong corporate governance takes into account the successful and consistent strategy and adhering to a historically conservative financial policy. The Company’s structure consists of two segments — Russia, which consolidates the Group’s main production companies, and international, the perimeter of which includes operating companies in the regions of presence (sales and service), new production facilities, a research center, as well as the Group’s logistics center. Management is performed by boards of directors at the holding and sub-holding companies, including independent directors and beneficiaries who act as non-executive directors. The Group has established an audit committee, financial committee, and a remuneration committee. The Company has approved charts of financial and country risks for all business areas. The central treasury manages the key financial risks. Foreign currency obligations are balanced by foreign currency revenues from several regions of presence.
Very high profitability and medium size of business. The size of the Company (FFO before net interest payments and taxes ranges from RUB 5 bln to RUB 30 bln) is assessed as medium for the Russian corporate segment. The Company’s profitability, in turn, is very high thanks to the vertical integration of production and provision of a complete range of accompanying services. In 2022, the FFO margin before interest and taxes was 27.9% vs. 25.7% a year earlier. In H1 2023, the Company’s revenues grew by 17.9% to USD 328 mln.
Low leverage. Total debt to FFO before net interest payments was 2.85x in 2022 vs. 4.7x a year earlier. This indicator improved due to a decline in the Group’s total debt from USD 540 mln to USD 510 mln and net interest payments increasing to USD 179 mln. ACRA expects this indicator to keep improving in the forecast period. The Company’s debt obligations include long-term bond issues and a revolving credit line. Obligations are denominated in Russian rubles and US dollars and were raised at fixed rates. Coverage (the ratio of FFO before net interest payments to interest payments) was 5.2x in 2022, while the average weighted value for 2021 to 2026 is 5.4x.
Strong liquidity and cash flow. The Company has diversified sources of internal and external financing, including a stable positive operating cash flow, placements in public markets, and bank financing. The comfortable debt repayment schedule stems from the long-term structure of the loan portfolio (main repayments are due in 2026). The FCF margin was 2.4% in 2022 vs. -1.2% in 2021. The Agency expects the Company to maintain a positive FCF margin over the forecast horizon. The ratio of capital expenditures to revenues was 15.2% in 2022 compared to 14.6% a year earlier.
KEY ASSUMPTIONS
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Annual average growth of revenues (CAGR) at no lower than 8.5% from 2023 to 2025;
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Investment program carried out according to plan;
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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:
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Further growth in export sales;
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FFO before net interest payments to interest payments exceeding 8.0x;
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Total debt to FFO before net interest payments falling below 2.0x;
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FCF margin exceeding 10%.
A negative rating action may be prompted by:
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FFO before net interest payments to interest payments falling below 5.0x coupled with total debt to FFO before net interest payments exceeding 3.5x;
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FFO margin before interest and taxes declining below 15% and FCF margin falling below 2%.
rating components
Standalone creditworthiness assessment (SCA): а+.
Support: none.
ISSUE RATINGS
Borets Capital LLC, series 001P-01 (RU000A105ZX2), maturity date: March 19, 2026, issue volume: RUB 13 bln — A+(RU);
Borets Capital LLC, series ЗО-2026 (RU000A105GN3), maturity date: September 17, 2026, issue volume: USD 221,050,000 — A+(RU).
Rationale. The issues represent senior unsecured debt of Borets Capital LLC, a wholly-owned subsidiary of the Group. The credit rating is based on a public irrevocable offer from the Group, as well a surety from Borets PC LLC, the Group’s main operating and production company. In accordance with ACRA’s methodology, the Agency applied the detailed approach to determine the credit rating. According to ACRA’s estimates, the recovery rate for the senior unsecured debt belongs to category II, therefore, the credit ratings of the issues are equivalent to that of the Group and are set at A+(RU).
regulatory disclosure
The credit ratings have been assigned to Tangent Pump Company Holdings Ltd. and the series 001P-01 (RU000A105ZX2) and series ЗО-2026 (RU000A105GN3) bond issues of Borets Capital LLC 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 the credit ratings to the above issues.
The credit ratings of Tangent Pump Company Holdings Ltd. and the series 001P-01 (RU000A105ZX2) and series ЗО-2026 (RU000A105GN3) bond issues of Borets Capital LLC were published by ACRA for the first time on November 11, 2022, March 23, 2023, and August 16, 2023, respectively. The credit rating of Tangent Pump Company Holdings Ltd. and its outlook, as well as the credit ratings of the bond issues of Borets Capital 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 Tangent Pump Company Holdings Ltd., information from publicly available sources, and ACRA’s own databases. The credit ratings are solicited and Tangent Pump Company Holdings Ltd. 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 Tangent Pump Company Holdings Ltd. and Borets Capital LLC. No conflicts of interest were discovered in the course of credit rating assignment.
