The credit rating of PJSC X5 Corporate Center (hereinafter, X5, or the Company) is based on the Company’s leading position in the Russian food retail market, very strong operational risk profile and liquidity, low leverage, and high profitability.
X5 is a leading player in Russia’s food retail market. The Company is successfully developing various trade formats, both offline and online. The Company had 25,470 stores as of June 30, 2024, including 22,000 Pyaterochka stores, 987 Perekrestok supermarkets, and 1,790 Chizhik hard discounters.
KEY ASSESSMENT FACTORS
X5’s very strong operational risk profile stems from the high assessment of market position, as well as the very high assessments of business profile, geographic diversification and corporate governance. The Company’s main area of activity — retail trade of food and consumer goods — has low cyclicality of demand. X5’s business is well diversified by formats — currently, the Company’s main segment is the convenience store format, which is represented by Pyaterochka stores, a significant part is accounted for by the supermarket format (Perekrestok stores). The Company is actively expanding its own chain of Chizhik hard discounters, and expanding its e-grocery presence. The Agency assesses the Company’s brand strength and promotional policy as very high.
X5 is successfully carrying out the strategy for development and transformation of its retail chain. The Company’s management structure is in line with best global practices. The risk management procedures are regulated and minimize all the main risks. The Company’s structure received a strong assessment; key operations that generate cash flow are concentrated on several legal entities. Financial transparency is very high, interaction with investors is carried out in line with best global practices.
Low leverage and high coverage. According to ACRA’s estimates, the weighted average ratio of total debt to FFO before net interest payments for 2021 to 2026 will be less than 1.0x, while the weighted average ratio of adjusted total debt to FFO before fixed payments for the same period will be less than 3.0x. The weighted average ratio of FFO before net interest payments to interest payments for 2021–2026 is estimated at 14.7x, while the ratio of FFO before fixed payments to fixed payments is 2.6x.
Very strong liquidity and strong cash flow. In 2022, the Company reduced its investment activity and stopped paying dividends, which enabled it to significantly grow the cash reserves on its balance sheet and improve cash flow indicators. The Agency notes the recovery of the Company’s investment activity since 2023 and continuing uncertainty regarding possible resumption of dividend payments. The absence of dividend payments provides additional support to X5’s liquidity and cash flow indicators.
KEY ASSUMPTIONS
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Successful implementation of the Company’s development plan;
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Annual average growth of revenues at around 16% in 2024–2026;
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Gross profitability ranging from 21.5–22.5% in 2024–2026.
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 payments to fixed payments declining below 1.5x;
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FFO before fixed payments and taxes margin declining below 10% and weighted ratio of adjusted total debt to FFO before fixed payments exceeding 4.0x.
RATING COMPONENTS
Standalone creditworthiness assessment (SCA): aaa.
Support: none.
ISSUE RATINGS
Bonds of X5 Finance LLC, series 003P-05 (RU000A108LU2); maturity date: May 26, 2034,
issue volume: RUB 10 bln — AAA(RU).
Bonds of X5 Finance LLC, series 003P-04 (RU000A107WL0); maturity date: February 28, 2034,
issue volume: RUB 10 bln — AAA(RU).
Bonds of X5 Finance LLC, series 003P-03 (RU000A107AJ0); maturity date: November 22, 2033,
issue volume: RUB 10 bln — AAA(RU).
Bonds of X5 Finance LLC, series 003P-02 (RU000A1075S4); maturity date: October 17, 2026,
issue volume: RUB 20 bln — AAA(RU).
Rationale. The Agency views these issues as a senior unsecured debt of the Company. Due to the absence of contractual subordination of the issues, ACRA regards them as equal to other existing and future unsecured and unsubordinated debt obligations of the Company in terms of priority. According to ACRA’s estimates, the recovery rate on unsecured debt belongs to category I, therefore, the credit rating of the issues is AAA(RU), i.e. on par with the credit rating of the Company.
REGULATORY DISCLOSURE
The credit ratings of PJSC X5 Corporate Center and the bond issues of X5 Finance LLC 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 abovementioned bond issues.
A credit rating has been assigned to PJSC X5 Corporate Center for the first time. The credit rating of the bond issues of X5 Finance LLC (RU000A108LU2, RU000A107WL0, RU000A107AJ0, RU000A1075S4) was published by ACRA for the first time on June 7, 2024, March 12, 2024, December 5, 2023, and November 2, 2023 respectively. The credit rating of PJSC X5 Corporate Center and its outlook, as well as the credit rating of the bond issues of X5 Finance LLC, are expected to be revised within one year following the publication date of this press release.
The credit ratings of PJSC X5 Corporate Center and the bond issues of X5 Finance LLC were assigned based on data provided by PJSC X5 Corporate Center, information from publicly available sources, and ACRA’s own databases. The credit ratings are solicited and PJSC X5 Corporate Center 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 X5 Corporate Center. No conflicts of interest were discovered in the course of credit rating assignment.
