Press Releases / 09.10.2013

Press Release as of 09.10.2013

CJSC Wastes Management

AK&M Rating Agency assigned the A rating to the bonded loan released by Wastes Management as of the national scale with stable outlook.

The A Rating indicates that the bonded loan of the 01st series is included into the category of financial instruments of high credit quality sufficient to secure borrower’s liabilities. The risk of the undue execution of liabilities is rather low and probability of the restructuring of the debt or of its portion is close to zero.

The 01st series of the bonded loan released by Wastes Management in the volume of 2.8bn rub. is assumed to be allocated in Nov. 2013. The maturity period is equal to 3 834 days (10.5 years) with full coverage in May 2024. This loan is aimed to raise financial resources on the stock market to provide the funding and realization of the investment project on the building and maintenance of the utilities system, in particular, the system for the recycling and utilization (disposal) of solid wastes in Saratovskaya reg. This system includes the yards, waste transfer complexes, rubbish recycling plants and bio-composition divisions. The project is realized on the basis of the state-private partnership within the 25-year concession agreement in line with which Wastes Management is a concessioner and Saratov reg. (Environmental Protection Committee) as concedent. The project is appraised to demand 8.1bn rub. in total. The funding of the first stage will be provided out of the loans, primarily, out of the bonded loan of the 01st series. In future, the funding of the capital investments will be provided on the self-financing principles.

The most important factors backing up the rating of the 01st series of the bonded loan released by Wastes Management include the A rating to the bonded loan with positive outlook assigned by AK&M Rating Agency to the issuer of this loan; available security at the regional level; flexible schedule of the bonded debt coverage; provision of the funds on the servicing and coverage of liabilities due to the positive monetary flows; high level of the project return; low building and operating risks of the project.

The most important factor stipulating the high rating of the 01st series released by Wastes Management is the A rating with positive outlook assigned by AK&M Rating Agency prompted by the high level of investment project development aimed to form and launch a public utility infrastructure – the system of solid wastes recycling and utilization (disposal) in Saratov reg., steady financial situation at the issuer and experience in the arrangement of the projects in the sphere of the wastes management in Nizhegorodskaya and Volgogradskaya regions.

The actual security of the project provided by the Saratov reg. government is a key factor keeping up the high rating of the bonded loan. The terms of the concession agreement between Saratov reg. and Wastes Management stipulates full principal compensation and interest payment by the regional administration in case of the cancellation of the concession agreement, in particular, in case of the concessionaire’s default. The bonded indebtedness will be covered even in case of the unexpected negative changes in the project and its realization including the considerable worsening of financial indicators. Besides, the terms of the concession agreement involve the formation of the tariff for the works provided by Wastes Management on the wastes utilization and disposal on the cost-based principle with involved standard profit as a derivative of the expenditures. The last factor is a guarantee either of the break-even operation and profitability of the Company.

The flexible scheme of the bonded loan coverage is of key importance. It should be noted that the loan should be covered only by the moment of the expiration date, a borrower keeping the right of the preterm coverage. Under such conditions Wastes Management has quite real opportunity to execute the required loan liabilities.

The project analysis illustrates that all expenditures on the servicing and coverage of obligations are backed by sufficient positive money flows. The tentative debt coverage patterns (money flow accessible for the debt servicing and included into the list of appropriate expenses on the servicing and coverage of the principal) within the bonds payment period are always higher the unit. Thus, the financial model of the project stipulates the tentative money flow sufficient for the coverage of the bonds.

The analysis of the project’s efficiency demonstrates high rate of return on the project. The internal rate of return (IRR) gains 12.4%, These are rather high patterns illustrating considerable efficiency and high potential of the project. During the period of the bonded indebtedness the average return on assets is expected to reach 5.4% , own capital – 13.1% , return on sales (ROS, EBIT Margin) – 27.1% , net rate of standard profit – 13.4%, invested capital return – 47.2% and return on EBITDA (EBITDA margin) – 53.35%. The total amount of accumulation of the net profit by the moment of the expiration date of the Concession Agreement can reach 3.5bn rub.

The low risks prompted directly by the building and operation of the objects within the Concession Agreement can be considered in favor of the high rating level of the bonded loan due to its terms, certain simplicity of the building objects and high level of time-tested technologies used in the project. Moreover, just a general contractor bears the building risks instead of Wastes Management as a loan issuer.

The factors restricting the assignment of the credit quality rating for the 01st series released by Wastes Management involve the risk of the reduction of the tentative revenues due to low utility charges collection and large volume of the borrowed funds raised for the funding of the initial investment stage of the project.

The risk of the cut-down in the volume of tentative revenues due to the low collection of utility payments is a serious factor restricting the rating assignment. The long-term forecast of the utility charges collection in Saratov reg. is uncertain to some extent.

The considerable amount of the loan raised for the funding of the initial investment stage of the project also hampers the rating of the project return. The foregoing bonded loan will demand considerable amount of money for its coverage during 10.5 years and provision of 10 tranches for coupons coverage. To a certain extent, large volume of the funds required for the coupon payment in May 2015 and total coverage of the bonded loan in May 2024 is a risk factor as well.

The loan issuer is Wastes Management registered in Moscow with a branch in Saratov.

On July 1, 2013 the assets of Wastes Management as of a loan issuer reached 313.1mln rub. under RAS; own capital – 8.8mln rub.

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The full name of the issuer is Close Joint Stock Company Wastes Management.

The abbreviated name of the Company is CJSC Wastes Management.

The auditor of the loan issuer (Wastes Management) is Audit & Law Limited Liability Company (603116, N.Novgorod, 59a, Gordeevskaya Str.), state registration number 1025202392236; member of NP Auditors’ Guild of Regional Professional Accountants Institutions (127081,Moscow, Yasny proezd, bld. 2, 19).

This press release has been made on the basis of the Report on the credit rating assignment to CJSC Wastes Management.

The credit rating, along with any information and conclusions provided in this press release, only conveys our opinion on the Company’s credit standing and shall not be considered as advice on the purchase and sale of securities or the provision of loan facilities.

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.

AK&M Rating Agency is a leading independent national rating agency engaged in rating activities since 1993. AK&M Rating Agency is accredited by theMinistry of Finance of the Russian Federation (order no. 452 as of September 17, 2010).

AK&M Ratings are recognized by the Central Bank of Russia (for providing unsecured lending facilities – Regulation 323-P), Vnesheconombank (for granting subordinated loans) and SME Bank (for its program of lending to SME businesses), RUSNANO (when selecting banks to provide cash and settlement services to project and engineering companies implementing investment projects), the MICEX (for the Corporate Bond Index / MICEX CBI and Municipal Bond Index / MICEX MBI calculation and bond listing purposes). By a resolution of Russia’s Government AK&M Ratings count for the recapitalization of banks. Besides, AK&M Rating Agency is recognized by AHML and accredited by SRO National Securities Market Association.

CJSC AK&M Rating Agency
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Moscow, Russia
Phone no. (495) 916-70-30, fax no.: (499) 132-69-18.