The credit rating of PJSC Magnit (hereinafter, Magnit, or the Company) is based on its very strong operating risk profile, very large size, high profitability, and very strong liquidity. The Company’s credit rating has been upgraded due to an improved score for the corporate governance factor; ACRA also took into account the comparison with a group of peer companies. The Agency has upgraded its score for the Company’s management structure in view of the appointment of the board of directors at the annual general meeting of shareholders (hereinafter, the AGM) held on December 28, 2023. Previously, the formation of a new board of directors was not possible due to the difficulties of conducting the AGM given the share capital structure at the time. However, in the second half of 2023, the Company bought its shares from foreign shareholders, which allowed the AGM to be held and the new board of directors to be appointed.
Magnit is one of the two largest retail market players in Russia. At the end Q3 2023, the Company’s chain (including DIXY stores) included 28,707 stores with the total sales area of about 9.9 mln square meters.
key ASSESSMENT factors
Very strong corporate governance. The assessment is based on the very high scores for the Company’s strategy, governance structure, risk management, and financial transparency, as well as the high score for the group structure. Magnit is successful in implementing its strategy for development and transformation of its retail chain. The Company’s governance structure matches the best international practices. Risk management procedures are regulated and minimize all major types of risk. The structure of the Company is moderately complex, with the main cash-generating operations concentrated in a single legal entity.
Magnit’s very strong business profile is driven by the low cyclicality of demand for products (the Company’s core activity is retail trade in groceries and staple goods), very strong diversification by store format, as well as very high brand strength. Magnit is continuing to actively develop the convenience store segment as one of the most in-demand retail formats in the market. Convenience stores, drugstores and discounters are the fastest growing formats. In May 2023, Magnit opened its first hard discount store, B1, in Moscow. The Company is implementing a range of delivery projects, both in-house and partner (express delivery, regular delivery, online drug store, cosmetics, and partnerships). The largest and fast-growing segment is express delivery.
Low leverage and medium coverage. According to ACRA’s estimates, the weighted average ratio of total debt to FFO before net interest for 2021–2026 will be 2.1x, and the ratio of adjusted total debt to FFO before fixed charges will be 4.1x, while ACRA expects these ratios to fall in the forecast period below 2.0x and 4.0x, respectively. The ratio of net debt to EBITDA, according to the Agency’s estimate, will remain below 2.0x in the forecast period. The weighted average ratio of FFO before net interest to interest for 2021–2026 is estimated at 6.5x, and the ratio of FFO before fixed charges to fixed charges — at 2.0x.
Very high liquidity and high cash flow assessments. Magnit’s very high liquidity assessment is due to the presence of a significant amount of committed credit lines. ACRA notes wide access to external funding sources and a sufficient degree of diversification of the Company’s creditor base.
KEY ASSUMPTIONS
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Successful implementation of the Company’s strategy.
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Absence of M&A transactions that may significantly affect the Company’s business.
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 negative rating action may be prompted by:
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Ratio of FFO before fixed charges to fixed charges falling below 1.5x;
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Ratio of adjusted total debt to FFO before fixed charges sustainably higher than 4.0x.
RATING COMPONENTS
Standalone creditworthiness assessment (SCA): aaa.
Support: none.
issue ratings
Bonds of PJSC Magnit, series BO-001P-05 (RU000A1036M9); maturity date: May 29, 2024, issue volume: RUB 10 bln — AAA(RU).
Bonds of PJSC Magnit, series BO-002P-04 (RU000A1036H9); maturity date: May 29, 2024, issue volume: RUB 10 bln — AAA(RU).
Bonds of PJSC Magnit, series BO-004Р-01 (RU000A105KQ8); maturity date: December 2, 2025, issue volume: RUB 20 bln — AAA(RU).
Bonds of PJSC Magnit, series BO-004Р-03 (RU000A105TP1); maturity date: August 3, 2028, issue volume: RUB 30 bln — AAA(RU).
Rationale. The bond issues represent senior unsecured debt of Magnit. Due to the absence of either structural or contractual subordination of the issues, ACRA ranks them as equal to other existing and future unsecured and unsubordinated debt obligations of the Company. According to ACRA’s calculations, the level of recovery for the senior unsecured debt belongs to category I, and therefore the bond issues are rated on par with Magnit — AAA(RU).
REGULATORY DISCLOSURE
The credit ratings have been assigned to PJSC Magnit and the bond issues (RU000A1036M9, RU000A1036H9, RU000A105KQ8, RU000A105TP1) of PJSC Magnit 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 under the National Scale for the Russian Federation was also applied to assign credit ratings to the above issues.
The credit rating of PJSC Magnit was published by ACRA for the first time on September 23, 2019. The credit ratings of the bond issues (RU000A1036M9, RU000A1036H9, RU000A105KQ8, RU000A105TP1) of PJSC Magnit were published by ACRA for the first time on June 2, 2021, June 2, 2021, December 6, 2022, and February 9, 2023, respectively. The credit rating of PJSC Magnit and its outlook and the credit ratings of the bond issues (RU000A1036M9, RU000A1036H9, RU000A105KQ8, RU000A105TP1) of PJSC Magnit 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 PJSC Magnit, information from publicly available sources, and ACRA’s own databases. The credit ratings are solicited and PJSC Magnit 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 PJSC Magnit. No conflicts of interest were discovered in the course of credit rating assignment.
