Press Releases / 22.12.2014
Press Release as of 22.12.2014
CJSC Wastes Management
AK&M Rating Agency upgraded the national scale credit rating to bonded loan 01 of CJSC Upravlenie otkhodami to 'A+', with a stable outlook.
The 'A+' rating indicates a high credit worthiness of bond issue 01. The risk of a failure to meet obligations in time is insignificant.
Bonded loan 01 of CJSC Upravlenie otkhodami in the amount of RUB 2.8 billion was issued in November 2013. The bond maturity term is 3,834 days (10.5 years) with final maturity in May 2024. CJSC Upravlenie otkhodami placed the bonds with the aim of raising financial resources in the securities market to finance and implement the project of creating and subsequently operating a solid domestic waste treatment and disposal facility in Saratov region.
The project is being implemented pursuant to a 25-year concessionary agreement signed with the government of Saratov region (the concession provider) on January 29, 2013. This agreement covers all aspects of the relationship between the authorized regional authorities and CJSC Upravlenie otkhodami and governs the parties' rights and obligations during the implementation of this agreement. The concessionary agreement envisages the capital investment of at least RUB 1.64 billion with a payback period of 7 years. The agreement also provides for the complete reimbursement of the Company's investment and operating costs including financial expenses.
The key determinant of the high credit rating for bonded loan 01 of CJSC Upravlenie otkhodami is the issuer's strong rating position mainly owing to guarantees from the regions enshrined in concessionary agreements. The agreements provide for the complete reimbursement of the Company's investment and operating costs including financial expenses. Under the agreements, the waste treatment and disposal tariff is based on the Company's expenses, adjusted for a standard profit derivative of the amount of expenses, which ensures the profitability of the Company's operations.
Another positive key rating argument is the flexible repayment scheme for bonded loan 01. The borrower has an early repayment option, although the loan only must be repaid at maturity – which provides CJSC Upravlenie otkhodami with realistic opportunities to meet the obligations arising from the bonded loan.
Our review has shown that the Company will be able to timely meet all its financial obligations under the project in Saratov region with moderate volatility of the nominal macroeconomic parameters. The first coupon payment under bonded loan 01 in the amount of RUB 339 million is to be effected in 2015. This payment falls on the longest first coupon period of 546 days. The following coupon periods (until the last 10th coupon period in 2024) will be equal to 365 (366) days, which will influence the amount of coupon yield accrued in these periods.
In 2018, CJSC Upravlenie otkhodami intends to start the principal debt repayment in equal installments. This, starting from 2018, will gradually reduce interest payments, with a minimum level of ca. RUB 18 million in 2024. Our review has shown that the Company's expenses for the servicing and repayment of obligations are fully covered by positive cash flows. In terms of the whole project the interest (coupon) expense coverage ratio seems to be fairly comfortable. In 2015, the ratio will be 0.6 on account of the capacity underutilization; coupon payments will be effected at the expense of the bonded loan. Later, the ratio is expected to substantially improve to 3.3 in 2016, to reach a comfortable level of ca. 4.7 in 2017 and to continue growing fast as the Company's EBITDA grows. It should be noted that partial redistribution of funds is possible within the group, given that the treasury function is centralized at CJSC Upravlenie otkhodami. This additionally contributes to the project liquidity.
Another reason for the positive rating action is that some of the facilities in the Company's ambitious project in Saratov region are at an advanced stage. According to current situation reports, in the third quarter of 2014, the Company secured permission for the commissioning of the "Engels cluster" facility. The adjustment of the cost of property created by CJSC Upravlenie otkhodami to be transferred to the concession provider as well as the tariff calculation are near completion. In this connection, the Company's expectations of substantially stronger operational and financial performance metrics in 2015 may be regarded as well grounded.
The credit rating of bonded loan 01 issued by CJSC Upravlenie otkhodami is mainly constrained by the inherent macroeconomic parameters of the financial model and administrative matters influencing, among others, the key tariff approval and annual revision process.
The risk of lower-than-projected incomes due to the poor collectability of utility payments also impairs the Company's rating. Long-term forecasts of utility payment collectability trends in regions always have an element of uncertainty.
This press release is based on the Statement of assignment of a credit rating to bonded loan 01 issued by CJSC Upravlenie otkhodami. The rating, along with any information and conclusions provided in this press release, only conveys our creditworthiness opinion and shall not be construed as a recommendation to purchase or sell securities, or to lend funds.
AK&M Rating Agency shall not be held liable for any interpretations, inferences and consequences related to the application of results of the rating estimation procedure by any third parties.
AK&M Rating Agency is a leading independent national rating agency engaged in rating activities since 1993. CJSC AK&M Rating Agency is accredited by the Ministry of Finance of the Russian Federation (order no. 452 as of September 17, 2010) and is on the Central Bank of Russia's Register of Accredited Rating Agencies.
CJSC Analysis, Consulting and Marketing Rating Agency
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Phone no. (495) 916-70-30, fax no.: (499) 132-69-18.