Press Releases / 14.03.2014
Press Release as of 14.03.2014
AK&M Rating Agency affirmed the 'A' national scale credit rating assigned to issue 4-01-20468-P of inconvertible interest-bearing documentary bearer bonds of Volga – Sport, CJSC. The outlook is stable.
The 'A' rating indicates a high credit worthiness of bond issue 4-01-20468-P. Risk of a delay in meeting liabilities is relatively low, restructuring risk for a loan / part of a loan is minimal.
The bonded loan of series 4-01-20468-P in the amount of RUB 1.4 billion with a tenor of 4,018 days was meant to be the key funding source for the project of construction and subsequent operation of the sports and health recreation centers in Lukoyanovsky, Pavlovsky and Krasnobakovsky districts of Russia's Nizhny Novgorod region (hereinafter referred to as the 'Nizhny Novgorod project'). Implementation of this project employs a public private partnership scheme. A concessionary agreement specifying Volga – Sport, CJSC as the concessionary and Nizhny Novgorod region as the concession provider was concluded for a period of 12 years. The construction project was completed and commissioned in the fourth quarter of 2011. The total cost of the project (VAT inclusive) is approximately RUB 1.4 billion. Volga – Sport, CJSC is the principal investor in the project and the issuer of bonded loan 4-01-20468-P. The long-term debt liabilities on the Nizhny Novgorod project reached a peak at the end of the third quarter of 2011.
AK&M Rating Agency regards the issuer's diligence in meeting the obligations to service its bonded loan of series 4-01-20468-P, the regional government's commitment to the financing of the concession facilities' operation, the obligation of the concession provider (Nizhny Novgorod region) to pay back the funds invested in the project, provided for by the concessionary agreement, the low risks of Volga – Sport, CJSC related to the operation of sports facilities, and a strong financial performance of the sports facilities constructed pursuant to the project in Nizhny Novgorod region as positive rating drivers for the bonded loan of Volga – Sport, CJSC of series 4-01-20468-P.
The issuer's diligence in meeting the bonded loan 4-01-20468-P servicing obligations is a major positive argument for the credit rating of this debt instrument. In 2013, Volga – Sport, CJSC transferred the first coupon payment to the investors in due time. Also, the Company bought back its bonds amounting to RUB 140 million, thereby reducing the principal debt on bonded loan 4-01-20468-P by RUB 140 million).
Another essential positive driver supporting the credit rating of Volga – Sport's bonded loan 4-01-20468-P is the regional government's commitment to the financing of the concession facilities' operation. The regional support makes the operation of the sports facilities profitable, while the public authorities' supervision over the project implementation increases investors' security.
We appreciate the obligation of Nizhny Novgorod region to pay back, under certain conditions, the funds invested in the project as a major positive argument for the bonded loan rating. As agreed between Volga – Sport, CJSC and the government of Nizhny Novgorod region, concessionary agreements may be terminated should the concessionary fail to meet the targets set forth in the financial model which is an integral part of the concessionary agreements. In this case, the government of Nizhny Novgorod region will reimburse the issuer for all its project-related expenses. Therefore, even contingencies related to the project and its implementation (including lower cash flows) will not prevent the Company from meeting its bonded loan obligations.
Another positive signal for the bonded loan rating is the low level of risks related to the operation of sports facilities for Volga – Sport, CJSC following from the concessionary agreements, other contracts and the Company's risk management policy pursuant to the project.
Volga – Sport's impressive financial result achieved when operating the already constructed sports facilities in Nizhny Novgorod region also contributes to the rating. The Company's 2011 and 2012 reports indicate that its profits easily surpassed the targets; in 2013, the Nizhny Novgorod project reached the target earning capacity. This proves that the sports facilities construction and operation business of Volga – Sport, CJSC is fairly profitable and promising.
At the same time, the dependence of the project's financial viability on the state of the regional budget, absence of a fixed cost of loan servicing, and long-term forecasting risks regarding the operation of the sports facilities are exerting pressure on the rating of Volga – Sport CJSC's bonded loan 4-01-20468-P.
A certain amount is earmarked in the budget of Nizhny Novgorod region as a source of Volga – Sport's income from the operation of the sports and health recreation facilities, which makes the project's financial viability dependent on the state of the regional budget. This, in a certain way, is working against the bonded loan rating.
Another risk factor is an element of uncertainty as to the cost of loan servicing. The first coupon rate on the bonded loan is 9.75% per annum; for other coupon periods, yield rates will be calculated as the annualized consumer price index reported in due order by the authorized executive federal authority as of May in the year preceding the year of respective coupon payment (May over May), plus 2.75%. Therefore, the coupon rate on the securities issued will largely depend on the inflation rate on a long-term horizon.
Besides, the long terms of concessionary agreements imply risks of imperfect long-term forecasts due to challenges of forecasting as such and possible unpredictable force-majeure circumstances.
Volga – Sport, CJSC is an investment company established under the Russian legislation to implement construction and operation projects for sports and health recreation centers and other sports facilities in the Russian Federation. Volga – Sport, CJSC is a subsidiary company of CJSC Investment Company Leader.
Apart from the rated bonded loan 4-01-20468-P, Volga – Sport has placed bonded loan 4-02-20468-P to raise funds for the construction and subsequent operation of a sports complex in Ulyanovsk city. Implementation of this project employs a public private partnership scheme. A concessionary agreement specifying Volga – Sport, CJSC as the concessionary and Ulyanovsk region as the concession provider was concluded to that end for a period of 12 years. The construction project is expected to be completed and commissioned in March 2014. AK&M Rating Agency has rated Volga – Sport's bonded loan 4-02-20468-P at 'A', with a stable outlook.
At the end of the third quarter of 2013, Volga – Sport's assets exceeded RUB 3.5 billion, equity capital was RUB 29.3 million, net profit reached almost RUB 12.5 million.
Official Company name: "Volga – Sport", CJSC.
This press release is based on the statement of assigning a credit rating to bond issue 4-01-20468-P by Volga – Sport, CJSC.
The credit rating, along with any information and conclusions provided in this press release, only conveys our opinion on the Company's reliability and shall not be construed as advice on the purchase and sale of securities or the provision of loan facilities.
CJSC AK&M Rating Agency will not incur any responsibility for any interpretations, inferences and consequences related to the application of results of the rating estimation procedure by any third parties.
CJSC 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).
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