The credit rating of G-Group JSC (hereinafter, G-Group or the Company) has been affirmed due to the continued very low leverage, very high debt servicing, high profitability, and strong liquidity. The free cash flow (FCF) margin continues to limit the overall assessment of the financial risk profile. The operational risk profile is characterized by the Company’s medium market position, very strong business profile, and very strong geographic diversification.
G-Group operates in the residential and commercial real estate sectors. The Company sells residential and non-residential properties (enjoying a leadership position in Kazan), constructs and leases retail and office properties, and single-family homes. Unistroy, the Company’s brand, ranks 34th in Russia in terms of housing projects under construction, according to the Unified Resource of Developers as of September 2024, and 51st in terms of housing projects completed in 2023.
KEY ASSESSMENT FACTORS
Very high industry risk. According to the Agency’s methodology, the very high risk of the housing construction industry is a serious factor constraining the Company’s credit rating.
Strong operational risk profile. G-Group maintains its leading position in terms of residential real estate sales volume in its key region of presence. 60% of the Company’s land bank area is in the Kazan agglomeration, and in 2023, Unistroy was the leader among developers in terms of housing commissioning volume in the Republic of Tatarstan (its share in this region is 10% according to the Unified Resource of Developers). G-Group continues to actively develop its business in Ufa, Tolyatti, St. Petersburg, Perm and Yekaterinburg, but the Company’s shares in most of these new regions remain low. In addition, the Company is at the stage of obtaining initial permit documentation and construction permits in Makhachkala and Nizhny Novgorod, and is also considering expansion into Krasnoyarsk, Novosibirsk and Tyumen.
G-Group’s portfolio currently includes 18 projects under construction (mostly comfort class). The high diversification of projects ensures a balanced inflow of proceeds from the released escrow accounts and considerably reduces the dependence of financial results on the implementation of a specific project. The share of agency sales is 55–60% depending on the region. The terms and conditions of the sale of properties are stable.
Revenues and EBITDA from activities related to commercial real estate (UD Group) as of the end of 2023 amounted to 9.4% and 23.9% of the Company’s total revenues and EBITDA, respectively. ACRA maintains an additional adjustment for the share of commercial real estate, which is a less risky business segment compared to residential real estate and ensures stable rental flows, which are a stabilizer of the Company’s credit metrics and an additional opportunity to receive long-term financing secured by construction projects.
The current strategy allows the Company to maintain its leading position in the market. G-Group is currently developing a new strategy. The Agency positively evaluates the very high level of financial transparency of the Company. IFRS financial statements are prepared on a semi-annual basis and published in the public domain, conference calls for investors are held regularly. Half of the eight members of the board of directors are independent. The Company has a full-fledged risk management system. The assessment of the corporate governance block is limited by the complex structure of the group.
Medium business size and high profitability. At the end of 2023, the Company’s revenues amounted to RUB 24.3 bln, and FFO before net interest payments and taxes was RUB 7.2 bln (an increase of 12.5% and 10.7% year-on-year). The weighted average FFO before net interest payments and taxes is RUB 14.7 bln for 2021–2026, which, together with the volume of the portfolio of projects under construction, corresponds to a medium business size according to the Agency’s methodology.
The Company’s profitability is assessed as consistently high. In 2023, the FFO margin before net interest payments and taxes was unchanged compared to 2023 and amounted to 30%.
Very low leverage and very high interest payment coverage. The loan portfolio of G-Group is well diversified by creditors. When calculating the ratio of net debt to FFO before net interest payments, ACRA adjusts the Company’s total debt by the debt raised as part of project finance using escrow accounts and secured by buyers’ funds placed in these accounts. Taking this adjustment into account, the net debt to FFO before net interest payments ratio was 1.45x by the end of 2023, and the total debt to equity ratio was 0.58x. The Agency does not expect the Company’s leverage to increase in the forecast period from 2024 to 2026.
In assessing debt service, ACRA took into account the interest payments on general corporate debt, while interest payments on project financing were included in the prime costs. In 2023, the ratio of FFO before net interest payments to net interest payments was 6.1x (vs. 9.6x in 2022). The weighted average debt coverage ratio for 2021–2026 is estimated to be very high.
Strong liquidity and weak cash flow. The strong assessment of liquidity reflects the comfortable general corporate debt repayment schedule in the medium term, as well as the availability of undrawn debt and diversified sources of financing. The weighted current liquidity ratio is 7.1. FCF profitability remains negative, including due to dividend payments. In connection with this, the Agency applies an adjustment to the FCF profitability indicator against the backdrop of very low leverage, a very high debt servicing ratio, and strong liquidity.
key assumptions
-
Construction projects to be completed and sales targets to be met as planned;
-
ACRA’s estimates include only projects under construction and projects to be commissioned in accordance with the Company’s current financial plan;
-
Dividend payments in the forecast period as per the Company’s presented financial model.
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 positive rating action may be prompted by:
-
Assessment of corporate governance improved to the highest level;
-
Volume of construction-in-progress exceeding 1 mln sq. m and weighted average FFO before net interest payments and taxes exceeding RUB 30 bln;
-
Weighted average FCF margin exceeding 5%.
A negative rating action may be prompted by:
-
Assessments of the following business profile sub-factors deteriorating — Project Diversification and/or Implementation Terms and Conditions;
-
Weighted average FFO before net interest payments and taxes falling below RUB 5 bln;
-
Weighted average FFO margin before net interest payments and taxes falling below 20%;
-
Weighted average ratio of net debt to FFO before net interest payments growing;
-
Weighted average ratio of FFO before net interest payments to interest payments declining below 8.0x;
-
Significant deterioration of the liquidity profile.
Rating components
Standalone creditworthiness assessment (SCA): a-.
Adjustments: none.
Issue ratings
No outstanding issues have been rated.
regulatory disclosure
The credit rating has been assigned to G-Group JSC 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 G-Group JSC was published by ACRA for the first time on October 2, 2019. 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 G-Group JSC, information from publicly available sources, and ACRA’s own databases. The credit rating is solicited and G-Group JSC 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 additional services to G-Group JSC. No conflicts of interest were discovered in the course of credit rating assignment.
