The credit rating of Glorax LLC (hereinafter, Glorax or the Company) is based on its medium leverage, strong liquidity position, medium cash flow, high interest payment coverage, and medium market position. In addition, the Agency notes the improvement of scores for the business profile and geographic diversification. The rating is constrained by very high industry risk and substantial repayment of corporate debt in 2025.
ACRA has maintained the Positive outlook to reflect its opinion regarding further growth of the Company’s business, better debt metrics, and broadening of the project portfolio. At the same time, the Agency is cautious in its assessment of the prospects of new projects and geographic expansion amid unfavorable market factors.
Glorax is a successful player in Saint Petersburg’s residential real estate market, and also actively carries out projects in Nizhny Novgorod, Moscow, and Kazan. As of the end of June 2024, according to the Company, its total current construction portfolio amounted to more than 600,000 sq. m.
KEY ASSESSMENT FACTORS
Industry risk is assessed as very high due to the pronounced cyclical nature of the construction industry, high amount of overdue payments, and the substantial number of developer companies that have defaulted over the last five years. The industry the Company belongs to is a strong factor limiting its credit rating.
Improvement of the business profile and geographic diversification assessments. The Company has expanded its construction portfolio by carrying out new projects: GloraX Ecocity, GloraX Business Petrogradsky, GloraX Novoselye, and Glorax Pargolovo Stage Two . ACRA notes the positive trend in diversification of cash flows; according to the Agency’s expectations, the share of the largest project in the expected revenues over the next three years will not exceed 25%. The business profile assessment continues to be constrained by the low assessment of the sub-factor Dependence on Materials and Sub-contracting — Glorax operates as a classic developer, performing mainly management functions. The portfolio is assessed as being very well sold. However, the Agency notes an increase in the average delay in housing commissioning over the past three years due to the postponement of one of the projects in 2023. At the same time, in 2024, the Company did not allow significant delays in commissioning.
The Company has significantly expanded its regional presence thanks to it entering the markets of Kazan and Nizhny Novgorod. Glorax plans to continue its regional expansion in the future by launching projects in Omsk, Vladimir, and the Leningrad Region. The Agency assumes that the share of the largest region in the structure of projected revenues will not exceed 40% over the next three years.
Below medium business size. In 2023, the Company’s revenues grew by twofold to RUB 13.7 bln. In addition, Glorax demonstrated significant growth of FFO before net interest payments and taxes — to RUB 4.1 bln (vs. RUB -0.7 bln a year earlier). Over H1 2024, revenues increased by 3.7 times compared to the same period the year before. According to ACRA’s estimates, weighted average FFO before net interest payments and taxes will be RUB 4.9 bln in 2021 to 2026. The Agency expects a further increase in the weighted average FFO before net interest payments and taxes due to a broadening of the project portfolio.
Medium cash flow and strong liquidity assessment. According to the Agency’s expectations, in the near future Glorax will have sufficient free cash flow (FCF) and liquid assets to cover general corporate debt. The weighted average short-term liquidity ratio in the period up to 2026 will be above 1.5x. A positive factor is the high stage of readiness of current projects and the expected disclosure of escrow accounts in 2025–2026.
According to ACRA’s estimates, the FCF margin from 2021 to 2026 will be positive and the weighted average indicator over this period will be around 3.2%.
Medium leverage and high interest payment coverage. In its calculation of the ratio of net debt to FFO before interest and taxes, ACRA adjusted the total debt by the amount raised as part of escrow-backed project finance and fully secured by buyers’ funds. According to the Agency’s calculations, the weighted average ratio of adjusted net debt to FFO before net interest payments for 2021 to 2026 will be 3.1x. The leverage assessment is medium as the Agency expects a cooling of demand in the residential real estate market. The growth of the key rate and reduction of preferential mortgage programs may have a negative impact on the Company’s sales and slow down the filling of escrow accounts, which will affect the increase in leverage.
The growth of the key rate may also have a negative impact on the Company’s debt service indicators. However, the Agency expects the weighted average FFO before net interest payments to net interest payments to be 5.1x for the period from 2021 to 2026.
A factor limiting the qualitative assessment of leverage is the significant amount of corporate debt repayment in 2025. The Company has to repay two bond issues with a total volume of RUB 2.5 bln. In total, the Company must repay 45% of its total corporate debt in 2025.
KEY ASSUMPTIONS
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Adhering to the planned terms of construction and sales;
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ACRA only took into account projects under construction and projects expected to be completed in accordance with the Company’s financial plan;
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No substantial decline in real estate prices in the primary market in 2025–2026.
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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Stable decline in the weighted average ratio of net debt to FFO before net interest payments to below 2.0x coupled with the weighted average ratio of total debt to capital falling below 1.0x and the quality assessment of leverage improving due to successful repayment of corporate debt in 2025;
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Weighted average FCF margin exceeding 5%;
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Weighted average FFO before net interest payments and taxes exceeding RUB 5 bln coupled with the ratio of commercial, general and administrative expenses to revenues falling below 15%;
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The Company carrying out its plans to reduce dependence on subcontracting.
A negative rating action may be prompted by:
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Weighted average ratio of net debt to FFO before net interest payments growing above 3.5x coupled with the weighted average ratio of FFO before net interest payments to interest payments declining below 5.0x;
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Real estate prices in the primary market falling by more than 15% in 2025–2026;
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Regulatory changes that entail potential material adverse effects on the Company’s performance.
rating components
Standalone creditworthiness assessment (SCA): bbb-.
Adjustments: none.
ISSUE RATINGS
Glorax LLC, series 001P-01 (ISIN RU000A105XF4), maturity date: March 11, 2025, issue volume:
RUB 1 bln — BBB-(RU).
Glorax LLC, series 001P-02 (ISIN RU000A108132), maturity date: March 5, 2026, issue volume:
RUB 1 bln — BBB-(RU).
Rationale. The issues listed above represents senior unsecured debt of Glorax LLC. Due to the absence of either structural or contractual subordination of the issues, ACRA ranks them as equal to other existing and future unsecured and unsubordinated debt obligations of the Company in terms of priority. In accordance with ACRA’s methodology, the recovery rate for unsecured debt is category 2, and therefore the credit rating of the issues is on par with the credit rating of the Company — BBB-(RU).
REGULATORY DISCLOSURE
The credit ratings have been assigned to Glorax LLC and the series 001P-01 (RU000A105XF4) and 001P-02 (RU000A108132) bond issues 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 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 issues.
The credit ratings of Glorax LLC and the series 001P-01 (RU000A105XF4) and 001P-02 (RU000A108132) bond issues of Glorax LLC were published by ACRA for the first time on November 9, 2021, March 13, 2023, and March 15, 2024, respectively. The credit rating and its outlook, as well as the credit rating of the series 001P-01 (RU000A105XF4) and 001P-02 (RU000A108132) bond issues, 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 Glorax LLC, information from publicly available sources, and ACRA’s own databases. The credit ratings are solicited and Glorax LLC 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 additional services to Glorax LLC. No conflicts of interest were discovered in the course of credit rating assignment.