The credit rating of “Sibenergomash — BKZ” LLC (hereinafter, Sibenergomash, the Factory, or the Company) is based on the improvement of the Company’s financial risk profile and improved assessments of size and profitability.
The Positive outlook for Sibenergomash’s credit rating reflects the Agency’s expectations regarding further improvement of financial risk profile factors amid expansion of the Company’s operations.
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 medium leverage and liquidity, high coverage, as well as the low cash flow and below-medium 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.
KEY ASSESSMENT FACTORS
The medium operational risk profile assessment is determined by the stable and growing order backlog, which currently amounts to around RUB 15 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. Revenues are 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 (mainly to the Republic of Kazakhstan in 2023). The Factory is successfully carrying out its previously approved three-year development program. Currently, the Company is forming a new strategy, operations are being carried out under annual plans, with a transition to three-year planning expected in the near future. In addition, the Company has approved an investment program until 2027. In terms of corporate governance, Sibenergomash has formed a board of directors and the CEO has been replaced.
Below-medium size of the Company and very high profitability. In 2023, the Company’s revenues amounted to RUB 3,390 mln (vs. RUB 2,828 mln a year earlier), while FFO before net interest payments and taxes was RUB 549 mln. The weighted ratio of the indicator from 2021 to 2026 is expected to be above RUB 700 mln, which will enable the size assessment to be improved (range from RUB 500 mln to 5,000 mln). The FFO margin before net interest payments and taxes was 16.2% in 2023. Given the positive dynamics in terms of growth of revenues and profitability in H1 2024, ACRA expects the very high (over 15%) FFO margin before interest payments and taxes to remain in the forecast period.
Medium leverage. The weighted average total debt to FFO before net interest payments for 2021–2026 is estimated at 2.5x. Debt is mainly lease obligations, as well as a bond issue and leasing. In addition to the specified elements, the calculation of the Company’s total debt included the guarantee that the Factory provided for the loan to StroyEnergoAktiv LLC. Interest coverage is high: the weighted estimate of FFO before net interest to interest is 5.3x for 2021 to 2026.
Cash flow is low due to the volatile FCF margin. In 2023, the margin was -1.3% vs. 25.3% in 2022 and -10.6% in 2021. These fluctuations are caused by the impact of changes in the working capital, since the Company’s production cycle is long. At the same time, the Factory has significant cash balances in its accounts, which exceed the bond loan repayment volumes planned for 2025. Committed limits under open credit lines serve additional sources of liquidity for Sibenegromash, which is also considering the possibility of new bond placements.
KEY ASSUMPTIONS
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Average annual growth of revenues at no less than 25% in 2024–2026;
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Capital expenditures of no more than RUB 1.1 bln in 2024–2026;
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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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Consistently positive FCF margin;
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Weighted ratio of total debt to FFO before net interest payments for 2021–2026 declining below 2.0x;
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Weighted ratio of FFO before net interest payments to net interest payments for 2021–2026 exceeding 8.0x.
A negative rating action may be prompted by:
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Weighted ratio of FFO before net interest payments to net interest payments for 2021–2026 declining below 5.0x coupled with the weighted FFO margin before net interest payments and taxes falling below 15%;
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Ratio of weighted ratio total debt to FFO before net interest payments exceeding 3.5x for 2021–2026 and deterioration of liquidity.
rating components
Standalone creditworthiness assessment (SCA): bbb-.
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 Assigning Credit Ratings 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.
