The credit rating of Sinara-Development-Finance LLC (hereinafter, SDF, or the Company) is based on the very high likelihood of extraordinary support being provided by Sinara Group JSC (ACRA rating AA-(RU), outlook Stable; hereinafter, the Sinara Group, or the Supporting Entity). The Company’s standalone creditworthiness assessment (SCA) is determined by the medium assessment of the operational risk profile, very low leverage, very high coverage, high profitability, and strong liquidity. Very high industry risk (residential construction) and lower-than-medium business size have a constraining effect on the Company’s SCA.
SDF is a residential developer mainly focused on mass segment projects in the markets of Yekaterinburg and Volgograd. The current construction portfolio of SDF is 177,800 sq. meters (according to the Unified Resource of Developers as of September 2024).
KEY ASSESSMENT FACTORS
Very high probability of extraordinary support from the Sinara Group. The SDF is a development division of the Sinara Group. The Company has strong legal ties with the Supporting Entity and is under full strategic and operational control of the Sinara Group. The Supporting Entity, in turn, has sufficient resources to provide timely and sufficient support to the Company. A single treasury established at the level of the Sinara Group ensures the support with liquidity that can be provided on time and as needed. Moreover, there were cases when the Sinara Group supported the Company through capital injections and loan guarantees.
The industry risk is assessed as very high due to the pronounced cyclical nature of the industry, the high amount of overdue debt, and a significant number of companies that have defaulted over the past five years. The industry the Company belongs to is a strong constraining factor to the credit rating.
The operational risk profile assessment is medium due to medium scores for the market position, business profile, and corporate governance, as well as the low score for the geographic diversification. According to the Agency’s estimates, the Company is a successful player in the moderately concentrated primary housing market in Yekaterinburg and Volgograd. The portfolio of projects is well diversified in terms of their number. However, in general, the diversification of projects is assessed by the Agency as medium, since in 2025–2027, according to ACRA’s estimates, the share of the largest project will account for more than 25% of sales. The Company engages subcontractors to do the construction work, while assuming the role of general contractor and technical supervisor. The deadlines and conditions of project implementation are viewed as very strong.
In the Agency’s opinion, the consistent and formalized strategy of the Company allows it to maintain competitive advantages and market share (historically and in the future) while keeping financial risks low. The Company has established a risk management system. The management structure is assessed as adequate. The structure of the group is moderately complicated, which reflects the operational and regulatory specifics of the residential construction industry.
Very low leverage and very high coverage. When calculating the ratio of net debt to FFO before interest and taxes, ACRA adjusts the total debt by the amount of project finance debt fully secured by buyers’ funds held in escrow accounts. The main portion of the Company’s loan portfolio is project debt, largely covered by funds in escrow accounts. The weighted average ratio of adjusted net debt to FFO before net interest for the period from 2022 to 2027 is estimated by the Agency at -0.5x. The weighted average ratio of FFO before net interest to net interest for the period from 2022 to 2027, according to ACRA’s estimates, exceeds 10.0x.
The liquidity assessment is strong given a comfortable debt repayment schedule and an expected increase in cash inflow due to release of escrow accounts.
KEY ASSUMPTIONS
-
Timely project commissioning and sales.
-
In its calculations, ACRA included only projects in progress and projects envisaged by the Company’s plans.
-
No fall in prices in the primary housing markets of Yekaterinburg and Volgograd in 2025–2027.
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:
- Upgrade of the credit rating of the Sinara Group.
A negative rating action may be prompted by:
-
Lower strategic importance of the Company for the Supporting Entity;
-
Loss of control by the Sinara Group;
-
Upgrade of the credit rating of the Sinara Group.
RATING COMPONENTS
Standalone creditworthiness assessment (SCA): bbb-.
Support: on par with the Sinara Group minus two notches.
ISSUE RATINGS
There are no outstanding issues.
REGULATORY DISCLOSURE
The credit rating has been assigned to Sinara-Development-Finance 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, Methodology for Assigning Credit Ratings with External Support, and the Key Concepts Used by the Analytical Credit Rating Agency within the Scope of Its Rating Activities.
A credit rating has been assigned to Sinara-Development-Finance LLC for the first time. 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 Sinara-Development-Finance LLC, information from publicly available sources, and ACRA’s own databases. The credit rating is solicited and Sinara-Development-Finance 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 Sinara-Development-Finance LLC. No conflicts of interest were discovered in the course of credit rating assignment.
