Press Releases / 12.11.2014
Press Release as of 12.11.2014
AK&M Rating Agency affirmed the national scale credit rating assigned to issue 4-02-20468-P of ninconvertible interest-bearing documentary bearer bonds of Volga – Sport, CJSC at 'A', tier 1. The outlook is stable.
The 'A' rating indicates a high credit worthiness of bond issue 4-02-20468-P. The risk of a failure to meet obligations in time is low, the full or partial debt restructuring risk is minimal.
The bonded loan of series 4-02-20468-P (ISIN: RU000A0JT593) in the amount of RUB 1.9 billion with a tenor of 4,139 days (11.3 years) fully maturing on February 29, 2024, was placed on October 31, 2012. This bonded loan was meant to raise capital in the securities market to finance and implement the project of construction and subsequent operation of a sports complex in Ulyanovsk (covered synthetic ice palace with 5,000 seats)
The project is being implemented under the regional development physical training and sports development program using a public private partnership scheme. Concessionary agreement no. 94-DP as of June 18, 2012, specifying Volga – Sport, CJSC as the concessionary and the government of Ulyanovsk region as the concession provider was concluded under the project. Construction of the ice palace in Ulyanovsk named Volga-Sport-Arena is completed, the sports facility is being successfully operated. The concessionary may operate the sports facility in the period from April 2014 to March 2024. The total cost of the project was ca. RUB 2 billion.
We regard the completion by the issuer of the construction phase and the successful commencement of operation of the Ulyanovsk-based Volga-Sport-Arena ice palace accounting for an increase in the issuer's earnings this year, the guarantees provided by the government of Ulyanovsk region under the concessionary agreement for the project financed by the loan, the low risks inherent in the sports complex operation, the flexible bonded debt repayment scheme, the loan issuer's fairly high creditworthiness and ability to successfully effect the coupon payments in 2014 and the positive cash flows sufficient to cover the Issuer's expenses for the servicing and repayment of obligations as the key positive rating drivers for bonded loan 4-02-20468-P issued by Volga – Sport, CJSC.
Completion of the construction phase has generally reduced the risks arising from the project. The Volga-Sports-Arena ice palace in Ulyanovsk was opened on April 1, 2014; next day the national ball hockey championship started on its ice.
Commencement of the ice palace operation has made a positive effect on the Volga – Sport, CJSC financial position, which contributes to the rating. In the second quarter of 2014 alone, revenues of Volga – Sport, CJSC owing to the ice palace operation in Ulyanovsk increased 3.4 times, net profit 8 times.
One of the key positive arguments for the high bonded loan rating is the availability of guarantees provided by the government of Ulyanovsk region for the project implemented. As agreed between Volga – Sport, CJSC and the government of Ulyanovsk region, the concessionary agreement 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 Ulyanovsk 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.
The loan rating is essentially supported by the low risks of Volga – Sport, CJSC related to the operation of the sports facility following from the terms of the concessionary agreement, other agreements and the risk management policy pursuant to the project.
We appreciate the flexible debt repayment mechanism for the bonded loan. Of particular importance is that the borrower has an early repayment option, although the loan only must be repaid at maturity – which provides Volga – Sport with greater financial headroom to meet obligations arising from the bonded loan, thereby reducing default risks and contributing to the current credit rating of the loan.
The fairly high creditworthiness of Volga – Sport, CJSC proven by the loan issuer's currently robust financial position and the high financial performance (meeting the target levels) of all the sports facilities constructed also supports the bonded loan credit rating.
The successful operation of all the facilities constructed enables Volga – Sport, CJSC to timely meet its obligations to service its current bonded loans, a positive signal for the creditworthiness assessment of the Company and its bonded loans issued by it. In August-September 2014 the Company paid a coupon in the amount of RUB 127.8 million on its bonded loan 4-01-20468-P, a coupon in the amount of RUB 383.7 million on its bonded loan 4-02-20468-P according to schedule. Besides, the Company reduced the principal debt under bonded loan 4-01-20468-P redeeming a RUB 140 million tranche of that loan in 2014.
Our financial analysis of the issuer shows that all the debt servicing and repayment expenses are properly covered by the Company's positive cash flows across the next 18 months. Projected debt coverage ratios (cash flows available for loan servicing purposes in relation to the corresponding principal debt servicing and repayment expenses) over the debt repayment period are always above 1. Therefore, the expected projected cash flows are sufficient to meet the obligations to service and repay the issuer's bonded loans.
At the same time, the dependence of revenues under the project on the state of the regional budget of Ulyanovsk region and the postponement of the sports complex commissioning to the second quarter of 2014 are putting pressure on the credit rating of bonded loan 4-02-20468-P issued by Volga – Sport, CJSC.
Volga – Sport, CJSC is a business entity established in accordance with the Russian legislation. Its initial objective was to implement a social infrastructure development project (construction and operation of sports and recreation centers in Lukoyanovsky, Pavlovsky and Krasnobakovsky districts of Russia's Nizhny Novgorod region. To mobilize capital required for the Nizhny Novgorod projects, the Company placed bonded loan 4-01-20468-P. The projected sports and recreation centers are successfully constructed and being operated. In 2014, AK&M Rating Agency affirmed the 'A' credit rating of bonded loan 4-01-20468-P, with a stable outlook.
The construction and operation of a sports center in Ulyanovsk financed with the rated bonded loan 4-02-20468-P is another major project of Volga – Sport, CJSC.
Therefore, Volga – Sport, CJSC has to date issued two bond issues currently in circulation.
As of the end of H1 2014, assets of Volga – Sport, CJSC almost reached RUB 3.9 billion, 6-month revenues totaled RUB 287.8 million, net profit was RUB 29.3 million.
Official Company name: "Volga – Sport", CJSC.
This press release is based on the Statement of assignment of a credit rating to bonded loan 4-02-20468-P issued by Volga – Sport, CJSC.
The credit 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.
CJSC Analysis, Consulting and Marketing 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.