ACRA assigns status “Rating under revision: negative” to JSC MaximaTelecom and RU000A101XD8 bond issue

The status “Rating under revision: negative” assigned to the credit rating of JSC MaximaTelecom (hereinafter, the Company) reflects ACRA’s opinion on a possible credit rating change in the short term amid potential deterioration in financial results due to new COVID-19 measures in Moscow.

Key rating assessment factors

The BBB+(RU) rating is based on the Company’s high leverage, average cash flow, and average liquidity. The rating is supported by a strong business profile, high profitability, and operations in highly developed regions.

The business advertising and services segment is the most profitable in the Company’s operations, but also the most susceptible to restrictive coronavirus measures. The Company’s rating is significantly supported by the rapidly growing infrastructure project segment, the total revenue of which had increased by 62% year-on-year as of June 30, 2020, as a result of IT infrastructure projects aimed at combating COVID-19. This allowed the Company to fully compensate for decreased advertising revenue. However, profitability on FFO before net interest payments in the infrastructure project segment is significantly lower than for advertising.

The decline in revenue from the advertising segment in H1 2020 generally fit into ACRA’s forecast model when assigning the rating. In addition, passenger traffic in the Moscow metro, which largely determines the Company’s revenue in the advertising segment, gradually recovered in July–September 2020. This allowed ACRA to avoid rating actions. However, since September 2020, the number of COVID-19 cases has started to grow again in Moscow, which, according to ACRA, may lead to new restrictive measures.

As long as the status is valid, ACRA will closely monitor the measures taken in Moscow to combat the spread of COVID-19, after which it will be able to assess their impact on the Company’s creditworthiness.

Key assumptions

  • Average annual revenue growth from advertising at 10% in 2020-2022 while maintaining current profitability;
  • Revenue growth from infrastructure projects to RUB 8−10 bln in 2020 while maintaining comparable levels in 2021−2022;
  • Growth in revenue from infrastructure projects to RUB 4-6 bln in 2020 while maintaining a comparable level in 2021-2022;
  • Positive FCF starting in 2021.

Potential outlook or rating change factors

The “Rating under revision: negative” status assumes that the rating may be changed within the next 90 days.

Removal of the “Rating under revision:  negative” status and affirmation of the credit rating may be prompted by:

  • No significant COVID-19 measures in Moscow;
  • Recovering in ridership in the Moscow Metro comparable to 2019 levels in 2020;
  • Maintaining total debt to FFO before net interest payments within 5.0x.

A negative rating action may be prompted by:

  • Increase in total debt to FFO before net interest payments above 5.0x;
  • Reduction in FFO before net interest payments to interest payments below 1.0x;
  • Reduction in returns on FCF below 8%;
  • Reduced access to liquidity sources.

Rating components

SCA: bbb+.

Adjustments: none.

Issue ratings

Bond issue JSC MaximaTelecom (RU000A101XD8), maturity: July 14, 2026, Call option:  July 18, 2023, issue volume: RUB 3 bln — BBB+(RU).

Credit rating rationale. The issue represents senior unsecured debt of the Company. Due to the absence of either structural or contractual subordination of the issue, ACRA regards it as equal to other existing and future unsecured and unsubordinated debt obligations of the Company in terms of priority. According to ACRA’s methodology, the credit rating of the issue is equivalent to that of the Company, i.e. BBB+(RU). The Company’s credit rating was assigned the status “Rating under revision: negative,” which applies the bond issue as well.

Regulatory disclosure

The credit rating has been assigned to JSC MaximaTelecom and bond issued by JSC MaximaTelecom (RU000A101XD8) under the national scale for the Russian Federation based on the Methodology for Credit Ratings Assignment 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. Methodology for Assigning Credit Ratings to Individual Issues of Financial Instruments on the National Scale for the Russian Federation

The credit ratings of JSC MaximaTelecom and bond issued by JSC MaximaTelecom (RU000A101XD8) were assigned by ACRA for the first time on February 26, 2020, and July 1, 2020, respectively. The credit ratings and their outlooks are expected to be revised within 90 days following the publication date of this press release.

The credit ratings were assigned based on the data provided by JSC MaximaTelecom, information from publicly available sources, as well as ACRA’s own databases. The credit ratings are solicited, and JSC MaximaTelecom participated in their assignment.

No material discrepancies between the provided data and the data officially disclosed by JSC MaximaTelecom in its financial statements have been discovered.

ACRA provided no additional services to JSC MaximaTelecom. No conflicts of interest were discovered in the course of credit rating assignment.

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