The credit rating of Rissa Investments Limited (hereinafter, the Company, or the Group) is based on the positive trends of the operating and financial metrics of the Russian business segment, which generates more than 70% of the Group’s revenues. The Group’s credit rating is based on the persistently medium business profile assessment and leading market positions, which is a result of the presence of well-recognized brands in the product portfolio.

Despite the deconsolidation of the Ukrainian segment in 2023, the Group’s financial risk profile assessment has not changed, and is characterized by low leverage, medium coverage and high profitability. Weak free cash flow (FCF) continues to constrain the rating. Although the overall assessment of the Company’s financial risk profile has not changed, the Agency expects it to gradually improve due to positive changes in operating performance, cash flow and FCF margin after the peak of capital expenditures has passed. This served as the basis for changing the outlook on the Company’s credit rating from Stable to Positive.

Rissa Investments Limited is a holding company that consolidates bottled water production assets in Russia and Georgia. The portfolio of the Company’s brands includes Borjomi, Saint Spring, and others. Last year, the management recognized that it had lost control over the Group’s Ukrainian assets and excluded the results of the Ukrainian segment from the consolidated reporting starting from 2023.

KEY ASSESSMENT FACTORS

Stabilization of the Group’s operations and deconsolidation of the Ukrainian segment. In 2023, the Group recognized its loss of control over the Ukrainian segment and deconsolidated it. The Ukrainian segment provided around 23% of sales in monetary terms and 27% of sales in natural terms in 2022 via local brands. The Agency notes that the Group maintains the ability to sell Borjomi in Ukraine via an external distributor. The cessation of operating flows from the Ukrainian segment did not have an impact on the assessment, since ACRA previously took into account the risks and significant uncertainty associated with this segment in its assessment.

According to preliminary unaudited results, the Group’s revenues amounted to RUB 37.3 bln in 2023 after the deconsolidation of the Ukrainian segment, which was around the same level as in 2022 (RUB 37.7 bln). The factor that made it possible to avoid a significant decrease in revenues following the loss of the Ukrainian segment was the Russian segment, whose share in revenues, according to the Agency’s estimates, increased from 59% in 2022 to 73% in 2023. Further growth of the Russian segment in the coming years will be facilitated by a production and logistics complex in the Moscow Region that was launched in early 2022.

According to the Agency’s calculations, FFO before net interest payments and taxes amounted to RUB 8.1 bln in 2023, which continues to correspond to a medium assessment of business size as per ACRA’s methodology. The FFO margin before net interest payments and taxes was 19% in 2023. In the Agency’s opinion, the positive dynamics of the Russian segment will allow the Company to maintain a high level of FFO margin before net interest payments and taxes (19–20%) in 2024–2026.

Persistently medium business profile and leading market positions. The Company occupies leading positions in the bottled water markets of the Russian Federation and Georgia. In the current conditions, the Company strives for growth through geographic expansion, primarily to the countries of Central Asia, and it aims to increase the product diversification by producing water with various flavors and lemonades under the Borjomi brand and tea under the Saint Spring brand. The Company expects the share of the new product line to amount to around 20% in the total volume of sales in natural terms in 2024. Despite the presence of a significant number of competing products, the rating is supported, in the Agency’s view, by the strong brand recognition and consistent moderate growth in the consumption of bottled drinking water.

Leverage is expected to be low. The Group’s debt structure remains stable — the core of the debt portfolio is a bond issue, as well as loans from Sberbank (ACRA rating AAA(RU), outlook Stable) and JSC “ALFA-BANK” (ACRA rating AA+(RU), outlook Stable). In 2023, according to the Group’s preliminary consolidated financial statements, the ratio of total debt to FFO before net interest payments was 2.1x (around the same as in 2022), which is in line with ACRA’s expectations. The Agency predicts that the Group’s leverage will decline in 2024–2026, while the weighted average indicator will be 1.7x, which corresponds to low leverage.

The liquidity assessment remains high. The Group refinanced its bond issue using a put option in February 2024. The Company’s liquidity is supported by available internal and external funding sources, as well as a moderate level of debt, which allows additional external financing to be raised. The debt repayment schedule does not include any significant repayments until 2025, when an option must be provided for the new bond issue. The volume of capital expenditures in the Georgian segment puts pressure on liquidity, while the peak of expenditures in the Russian segment has already passed. FCF, according to ACRA’s assessments, was slightly above zero in 2023, and the weighted average indicator was -0.4%.

KEY ASSUMPTIONS

  • Annual average prices for the Company’s products growing on par with inflation in 2024–2026;

  • Growth of sales by 4–5% annually in 2024–2026;

  • Maintaining the current geography of operations;

  • Capital expenditures program maintained at 12% of annual revenues in 2024–2026;

  • Access to external liquidity sources.

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 average ratio of total debt to FFO before net interest payments declining below 1.0x;

  • Weighted average ratio of FFO before net interest payments to interest payments exceeding 8.0х;

  • FFO margin before net interest payments stabilizing at above 20%;

  • Sustainably positive FCF margin.

A negative rating action may be prompted by:

  • Weighted average ratio of total debt to FFO before net interest payments growing above 3.5x;

  • Weighted average ratio of FFO before net interest payments to interest payments declining below 2.5х;

  • FFO margin before fixed payments and taxes falling below 12%;

  • Any dividend payments if FCF is negative again;

  • Changes to the structure and membership of the Group which may lead to a deterioration of financial performance and infringement of creditors’ rights;

  • Worsened access to external liquidity sources.

rating components

Standalone creditworthiness assessment (SCA): a-.

Support: none.

ISSUE RATINGS

Bond issued by Borjomi Finance LLC, series 001P-02 (RU000A107TB7), maturity date: February 16, 2027, issue volume: RUB 5 bln — A-(RU).

Rationale. The series 001P-02 issue represents senior unsecured debt of Borjomi Finance LLC, a subsidiary of Rissa Investments Limited. The credit rating is based on a guarantee from the Group, public irrevocable offers from LLC “IDS Borjomi”, LLC “Aqua Star”, LLC “Edelweiss L”), LLC “Kompaniya Chistaya Voda”, and LLC “Zavod Svyatoi Istochnik”, as well as a prescribed cross-default on the obligations of the Group and companies included in the Group’s consolidation perimeter according to IFRS reporting. In accordance with ACRA’s methodology, the detailed approach was used to assess the recovery rate, according to which the recovery rate for the issue is category I, and therefore the credit rating of the issue is equal to the credit rating of the Group, i.e. A-(RU).

REGULATORY DISCLOSURE

The credit ratings of Rissa Investments Limited and the bond issue (RU000A107TB7) of Borjomi Finance LLC, a subsidiary of Rissa Investments Limited, have 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 Methodology for Assigning Credit Ratings to Financial Instruments under the National Scale for the Russian Federation was also applied to assign the credit rating to the above issue.

The credit ratings of Rissa Investments Limited and the bond issue (RU000A107TB7) of Borjomi Finance LLC were published by ACRA for the first time on May 21, 2020 and February 20, 2024, respectively. The credit rating of Rissa Investments Limited and its outlook and the credit rating of the bond issue (RU000A107TB7) of Borjomi Finance 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 Rissa Investments Limited, information from publicly available sources, and ACRA’s own databases. The credit ratings are solicited and Rissa Investments Limited participated in their assignment.

Deviations from approved methodologies: the Geographic Diversification factor was assessed with a deviation from the Methodology for Credit Ratings Assignment to Non-Financial Corporations under the National Scale for the Russian Federation taking into account the geography of the Company’s operations and its key sales markets.

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 Rissa Investments Limited and Borjomi Finance LLC. No conflicts of interest were discovered in the course of credit rating assignment.

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