The credit rating of RED SOFT LLC (hereinafter, RED SOFT or the Company) has been upgraded in view of improved debt coverage and profitability metrics. The operational risk profile assessment is still based on the strong business profile, very high geographic diversification, and low corporate governance assessment. The financial risk profile assessment is supported by the Company’s very high profitability, low leverage, and high coverage. Liquidity is assessed as medium due to the small size of the Company and its weak cash flow.
The Positive outlook has been maintained to reflect the Agency’s expectations regarding improvements in leverage, corporate governance practices, and revenue diversification.
RED SOFT is a Russian developer of infrastructure software, a resident of Skolkovo, and a member of the RSPA and RUSSOFT. The Company provides various data storage and management services based on proprietary solutions. The Company’s product portfolio includes RED OS, Red Database DBMS, Red Platform, Red Gateway, etc. These products are all included in the Unified Register of Russian Software and Databases authorized for use by government agencies.
KEY ASSESSMENT FACTORS
Medium operational risk profile assessment. ACRA still considers RED SOFT as a competitive player in the fragmented infrastructure software market. In the Agency’s opinion, demand for the Company’s products and services is characterized by very low volatility due to RED SOFT’s focus on public sector companies that are prohibited from using foreign software. Revenue diversification and product uniqueness are assessed as medium. The corporate governance assessment continues to be limited by insufficient formalization of strategic processes and the internal control and risk management system, as well as by low financial transparency.
Very high profitability and medium business size. In 2024, the Company’s revenues grew by more than 80% year-on-year to RUB 3.8 bln, and FFO before fixed payments and taxes exceeded RUB 1 bln. The Agency expects that the weighted average FFO before fixed payments and taxes may amount to RUB 1.5 bln for 2022–2027.
The FFO margin before fixed payments and taxes is assessed as very high. The Agency assumes the possibility of this indicator to fluctuate at around 30% and expects weighted average margin for 2022–2027 to be 32%.
Low leverage and high coverage. The Company’s loan portfolio includes two ruble-denominated bonds issues to be repaid in 2026, as well as an insignificant remaining part of a loan granted by one of the participants to be repaid by the end of 2025. The Agency believes that the weighted average ratio of lease-adjusted total debt to FFO before fixed payments will be 1.0x for 2022–2027. ACRA expects a gradual decrease in leverage along with an increase in FFO before fixed payments.
The ratio of FFO before fixed payments to fixed payments reached 6.4x in 2024. Given the Company’s plans to expand office space rentals, the Agency expects an increase in fixed payments in the forecast periods, noting that an increase in FFO before fixed payments will keep the coverage ratio above 6.0x. ACRA estimates that the weighted average FFO before fixed payments to fixed payments for 2022 to 2027 will be 6.5x, which leads to an improvement in the assessment of the debt coverage from medium to high.
Medium liquidity and weak cash flow. ACRA still assesses the Company’s liquidity as medium, taking into account that the Company has substantial funds in its accounts, while its outstanding bond issues are to be repaid in 2026. The Agency also takes into account the absence of available but undrawn bank credit lines.
In 2024, the free cash flow (FCF) margin returned to positive values. However, ACRA assumes that this indicator may be volatile, given the long sales cycle and client budgeting specifics (due to this, most of the Company’s revenues are reflected at the end of the year), as well as dividend payments. The Agency expects the weighted average FCF margin for 2022–2027 to be around zero, and that the Company will use most of its RAS net profit to pay dividends, which will put pressure on FCF.
The ratio of capital expenditures to revenues amounted to 2% by the end of 2024. ACRA expects that the indicator will remain within 5% in the forecast period, and the weighted average ratio of capital expenditures to revenues for 2022 to 2027 will be 2.9%, which corresponds to the highest score for the sub-factor.
KEY ASSUMPTIONS
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The current regulatory environment for IT companies to remain unchanged;
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Maintaining the current base of core clients;
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Capital expenditures at below 5% of revenues in 2025–2027;
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Maintaining the practice of providing loans to a related party;
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Maintaining access to external liquidity sources.
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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Weighted average ratio of lease-adjusted total debt to FFO before fixed payments falling below 1.0x at the same time as the weighted average FCF margin exceeding 2%;
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Higher diversification of revenues coupled with significant improvement of corporate governance practices.
A negative rating action may be prompted by:
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Weighted average ratio of FFO before fixed payments to fixed payments falling below 6.0x;
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Weighted average FFO margin before fixed payments and taxes falling below 30%;
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Weighted average ratio of lease-adjusted total debt to FFO before fixed payments exceeding 2.0х;
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Weighted average ratio of capital expenditures to revenues exceeding 10%;
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Difficulties in obtaining external liquidity.
RATING COMPONENTS
Standalone creditworthiness assessment (SCA): bbb.
Support: none.
ISSUE RATINGS
Bond of RED SOFT LLC, series 002Р-04 (RU000A106CR1), maturity date: June 5, 2026, issue volume: RUB 150 mln — BBB(RU).
Bond of RED SOFT LLC, series 002Р-05 (RU000A108VM8), maturity date: June 29, 2026, issue volume: RUB 100 mln — BBB(RU).
Credit rating rationale. The issues listed above represent senior unsecured debt of RED SOFT. Due to the absence of either structural or contractual subordination of the issues, ACRA regards them as equal to other existing and future unsecured and unsubordinated debt obligations of the Company. In accordance with ACRA’s methodology, the recovery rate for the unsecured debt belongs to category I, and therefore the credit rating of the issues is set to BBB(RU), i.e. on par with the credit rating of the Company.
REGULATORY DISCLOSURE
The credit ratings have been assigned to RED SOFT LLC and the bond issues of RED SOFT LLC (ISIN RU000A106CR1, RU000A108VM8) 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 credit ratings to the abovementioned bond issues.
The credit ratings of RED SOFT LLC and the bond issues of RED SOFT LLC (ISIN RU000A106CR1, RU000A108VM8) were published by ACRA for the first time on December 23, 2020, August 5, 2024, and August 5, 2024, respectively. The credit rating of RED SOFT LLC and its outlook and the credit ratings of the bond issues of RED SOFT LLC (ISIN RU000A106CR1, RU000A108VM8) 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 RED SOFT LLC, information from publicly available sources, and ACRA’s own databases. The credit ratings are solicited and RED SOFT 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 RED SOFT LLC. No conflicts of interest were discovered in the course of credit rating assignment.
