The credit rating upgrade of PIK Group Public Joint Stock Company (hereinafter, the Company or the Group) is driven by improved debt coverage of the Company resulting from higher FFO and lower leverage. The credit rating of the Company is based on a very strong business profile, very low leverage, and a very high assessment of debt coverage. At the same time, very high industry risk puts pressure on the Company’s credit rating.
The Company is the largest residential real estate developer in Moscow and the Moscow Region and the largest player in the Russian construction market. As of July 2019, the total area under construction by the Company was 7.4 million sq. m.
Industry risk is assessed as very high due to a pronounced cyclical nature of the sector, high amount of overdue debt, and substantial number of defaulted companies in the last five years. The industry the Company belongs to is a very strong factor limiting the credit rating of the Company.
Very strong business profile is based on highly diversified project portfolio, sustainable project implementation schedules and conditions as well as very high share of own construction materials and construction works performed without subcontractors. The share of prefabricated panel construction projects supported by own production capacity from reinforced concrete factories is around 60% in the total portfolio of the Company. The Group’s own capacity would rise to 100% in 2019, among other things through extended demand for construction services in view of the Company’s participation in the renovation program. The Group’s current share in the total hard contracts covering the renovation program is 35%. In 2018, the Company has started manufacturing a range of new products (including bathroom modular units, elevators, and windows).
Very high coverage and very low leverage. For the calculation of the net debt to FFO before interest and taxes ratio, ACRA adjusts the total debt by the amount of debt raised as part of project finance using escrow accounts and fully covered by client funds available on escrow accounts. The weighted average ratio (including the above adjustments) of net debt to FFO before net interest payments is assessed at 0.7x for the period of 2017-2021. The Agency projects the weighted average ratio of FFO before net interest payments to interest payments to equal 8.4x in 2017-2021.
Strong cash flow. Although the FCF (free cash flow) margin is low as the Company resumed dividend payments in 2018, ACRA believes that very low leverage, very high coverage and strong liquidity allow defining effects of the free cash flow margin on the Company’s creditworthiness as neutral, which, together with very low CAPEX to revenues ratio, determine cash flow assessment as strong.
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:
A negative rating action may be prompted by:
Standalone creditworthiness assessment (SCA): a-.
Credit rating rationale. The below bonds represent senior unsecured debt instruments of PIK Group Public Joint Stock Company. Due to the absence of either structural or contractual subordination of the bonds, ACRA ranks the bonds pari passu with other existing and future unsecured and unsubordinated debt obligations of the Company.
According to the ACRA methodology, the reimbursement rate for unsecured debt relates to category II; hence, the bond issues are assigned the credit rating equal to the credit rating of the Company.
Key issue properties
PIK Group Public Joint Stock Company (RU000A0ZZBJ7), maturity date: June 25, 2021, issue volume: RUB 4 billion — A-(RU).
PIK Group Public Joint Stock Company (RU000A0ZZAW2), maturity date: June 23, 2021, issue volume: RUB 6 billion — A-(RU).
PIK Group Public Joint Stock Company (RU000A0JXY44), maturity date: July 29, 2022, issue volume: RUB 10 billion — A-(RU).
The credit ratings were assigned to PIK Group Public Joint Stock Company and bonds issued by PIK Group Public Joint Stock Company (RU000A0ZZBJ7, RU000A0ZZAW2, RU000A0JXY44) 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, the Key Concepts Used by the Analytical Credit Rating Agency within the Scope of Its Rating Activities.
The Methodology for Assigning Credit Ratings to Individual Issues of Financial Instruments under the National Scale of the Russian Federation was also applied to assign credit ratings to the above issues.
The credit rating assigned to PIK Group Public Joint Stock Company and the credit ratings assigned to bonds (RU000A0ZZBJ7, RU000A0ZZAW2, RU000A0JXY44) issued by PIK Group Public Joint Stock Company were first published by ACRA on September 28, 2017, June 29, 2018, June 27, 2018 and September 28, 2017, respectively.
The credit rating and credit rating outlook for PIK Group Public Joint Stock Company and the credit ratings assigned to bonds (RU000A0ZZBJ7, RU000A0ZZAW2, RU000A0JXY44) issued by PIK Group Public Joint Stock Company are expected to be revised within one year following the publication date of this press release.
The credit ratings were assigned based on the data provided by PIK Group Public Joint Stock Company, information from publicly available sources, as well as ACRA’s own databases. The credit ratings are solicited, and PIK Group Public Joint Stock Company participated in their assignment.
No material discrepancies between the provided data and the data officially disclosed by PIK Group Public Joint Stock Company in its financial statements were discovered.
ACRA provided no additional services to PIK Group Public Joint Stock Company. No conflicts of interest were discovered in the course of credit rating assignment.
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