ACRA affirms BBB+(RU) to PJSC Samolet Group, outlook Stable

The credit rating of PJSC Samolet Group (previously Samolet Group of Companies JSC; hereinafter, the Company) is based on the Company’s strong business profile, high business profitability, high corporate governance quality, strong cash flow, strong liquidity, very low leverage, and very high coverage. At the same time, the industry risk is very high, which puts pressure on the Company’s credit rating.

The Company is the second largest developer in terms of sales in the Moscow region (based on 2018) and the fifth largest player in the Russian construction market by size. The Company focuses on comfort class low-cost housing, predominantly in the Moscow region and the New Moscow area. Most of the Company’s projects are integrated development projects. The Company’s total construction portfolio exceeds 11 mln sq. m.

Key rating 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 substantial number of companies that have defaulted over the last five years. Therefore, industry risk is a very strong factor that limits the Company’s credit rating.

Strong business profile and geographic diversification. The Company’s strong business profile is based on a highly diversified project portfolio and stable project completion timeline. The Agency notes an increase in the diversification of the portfolio of projects by class over the past three years. The Company is a leader in housing construction in the Moscow Region and plans to expand its business to Saint Petersburg and the Leningrad Region.

The Company’s high profitability is based on its ability to maintain sustainable sales rates and high construction rates. According to ACRA, the Company’s average weighted FFO before interest and taxes is expected to be 19.1% in 2015–2020. In addition, ACRA expects further growth in profitability due to the start of more marginal projects

The very low leverage and very high coverage are mainly the results of signing contracts with landowners that assume either payment for land with project shares or entry of landowners into projects as minority shareholders (cash-free model). When calculating the ratio of net debt to FFO before interest and taxes, ACRA adjusts the total debt to the amount of debt raised in project financing under escrow accounts and fully secured by funds raised to these accounts from buyers. Taking into account these adjustments, the average weighted ratio of net debt to FFO before net interest payments is 0.3x for 2016-2021.

Key assumptions

  • Maintaining planned construction and sales rates;
  • ACRA took into account only projects under construction and projects expected to be completed in accordance with the Company’s current plans;
  • No significant price changes in the primary real estate market of the Moscow region.

Potential outlook or rating change factors

The Stable outlook assumes that the rating will most likely stay unchanged within the 12 to 18-month horizon.

A positive rating action may be prompted by:

  • Increased average weighted FFO before net interest and taxes above 20% with increased presence in markets outside the Moscow Region and New Moscow Area and increased project diversity.

A negative rating action may be prompted by:

  • Decreased average weighted FFO before net interest to net interest below 8.0х with simultaneous increase in average weighted net debt to FFO before net interest above 1.0х;
  • Decrease in prices by more than 15% in the primary residential real estate market of the Moscow Region amid unchanged costs of construction work and materials in 2020–2021;
  • Regulatory changes able to affect the Company substantially.

Rating components

Standalone creditworthiness assessment (SCA): bbb+.

Adjustments: none.

Issue ratings

No outstanding issues have been rated.

Regulatory disclosure

The credit rating has been assigned 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.

The credit rating of PJSC Samolet Group was published by ACRA for the first time on July 10, 2018. The credit rating and its outlook are expected to be revised within one year following the publication date of this press release.

The assigned credit rating is based on the data provided by PJSC Samolet Group, information from publicly available sources, as well as ACRA’s own databases. The credit rating is solicited, and PJSC Samolet Group participated in its assignment.

No material discrepancies between the provided data and the data officially disclosed by PJSC Samolet Group in its financial statements have been discovered.

ACRA provided no additional services to PJSC Samolet Group. No conflicts of interest were discovered in the course of credit rating assignment.

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