Press Releases / 17.12.2015
Press Release as of 17.12.2015
CJSC Wastes Management
AK&M Rating Agency has affirmed the national scale credit rating of CJSC Upravlenie otkhodami at ‘A+’. The outlook is stable.
The 'A+' rating indicates that CJSC Upravlenie otkhodami qualifies as a highly creditworthy borrower. The risk of a failure to meet obligations in time is insignificant. The rating assignment was based on the Credit Rating Methodology for Project Financing Companies rev. February 16, 2015, including the amendments and additions dated October 12, 2015.
CJSC Upravlenie Otkhodami was established to raise capital in the securities market with the aim of financing and implementing investment projects to create and operate public utilities infrastructure, namely, solid domestic waste treatment and disposal facilities, in regions of the Russian Federation. Therefore, CJSC Upravlenie Otkhodami can be defined as a company specializing in the construction and operation of solid domestic waste treatment and disposal (burial) facilities. CJSC Upravlenie Otkhodami has built and is currently operating solid domestic waste treatment and disposal (burial) facilities in Nizhny Novgorod, Saratov and Volgograd regions as well as in the Chuvash Republic.
CJSC Upravlenie otkhodami operates under regional concessionary agreements. To finance its activities, the rated Company raises capital in the Russian stock market through corporate bonded loans.
As of today, CJSC Upravlenie otkhodami has floated two large long-term bonded loans in the stock market of the Russian Federation: loan 4-01-76600-H for a total amount of RUB 2.8 billion and loan 4-02-76600-H for a total amount of RUB 1.7 billion. Besides, the Company’s Nizhny Novgorod subsidiary CJSC Upravlenie otkhodami - NN has floated long-term bonded loan 4-01-20453-P for a total amount of RUB 1 billion in the domestic stock market; all the bonded loans are denominated in Russian rubles).
The credit rating of CJSC Upravlenie otkhodami is supported by the availability of guarantees from the regions for the financed projects, a flexible bonded debt repayment scheme, sufficient positive cash flows covering the maintenance costs and the debt repayment liabilities, the Company’s growing assets and revenues, and low construction and operation risks under the project.
One of the essential positive rating drivers for CJSC Upravlenie otkhodami is the availability of guarantees from 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 and includes 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 bonded loan repayment scheme. All the bond issues have ultimate repayment deadlines: May 7, 2024 for issue 4-01-76600-H, June 1, 2025 for issue 4-02-76600-H, June 15, 2022 for issue 4-01-20453-P.The borrower, however, has an option to make the early loan repayment at its discretion. This increases the Company’s capability to control the amount of financial debt and to meet related obligations.
The activity of CJSC Upravlenie otkhodami has a high internal rate of return (19.2%), while its debt servicing and repayment expenses are properly covered by the Company's positive cash flows. Projected debt coverage ratios (cash flows available for loan servicing purposes in relation to the corresponding principal debt servicing and repayment expenses) after the launch of the waste treatment & disposal facilities are normally above 1. Average annual debt coverage ratio reaches 1.0356. Therefore, the expected projected cash flows in terms of the project financial model are sufficient to meet the bonded loan servicing and repayment obligations.
CJSC Upravlenie otkhodami is further expanding its business. For the 12-month period ending at the beginning of the second half year 2015, the company’s consolidated assets grew 1.6 times to RUB 4,062.7 million, the revenue from services 1.9 times to RUB 241.5 million.
The Company’s high rating is also supported by low risks related to the construction and operation of the facilities, owing to relative simplicity of the facilities and highly proven operation techniques.
The key rating constraints for CJSC Upravlenie otkhodami include a large share of borrowings in the financing of its core activity, a risk of higher cost of borrowings and a risk of lower-than-projected incomes due to the poor collectability of utility payments.
The substantial amount of borrowings raised to finance the activity of CJSC Upravlenie otkhodami is a major rating constraint. The debt arising from the long-term bonds issued by CJSC Upravlenie otkhodami and CJSC Upravlenie otkhodami - NN reaches RUB 5.5 billion. The percentage of borrowed capital in the financing of capital expenses at the initial stages of projects approaches 100%.
Another notable risk factor in 2015-2016 is the substantial amount payable in coupons combined with the underutilization of capacity at some facilities. According to existing forecasts, the total amount of coupon payments over the period to 2025 reaches at least RUB 4 billion, the peak of payments is in 2016 when the company is to pay coupons on bonded loans 4-01-76600-H, 4-02-76600-H and 4-01-20453-P for a total amount of more than RUB 766 million. It should be noted that coupon rates applying to bonded loan issues 4-01-76600-H and 4-01-20453-P have notably increased recently (compared with the previously projected levels, among other things). The next coupon on bonded loan 4-01-20453-P is 18.8% (the historic low being 9.5%), the next coupon on bonded loan 4-01-76600-H is 15.4% (against the previous coupon rate of 11%). The coupon 1 rate on bonded loan of series 4-02-76600-H is set equal to 11%; starting from coupon 2, coupon rates will be linked to the inflation rate. At the same time, CJSC Upravlenie otkhodami can use borrowed funds to make coupon payments.
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.
Full name: Closed Joint-Stock Company Upravlenie otkhodami
Short name: CJSC Upravlenie otkhodami
Location: Varshavskoye Highway 95 bld. 1, 117556 Moscow, Russia
AK&M Rating Agency assigned a credit rating to CJSC Upravlenie otkhodami for the first time on October 9, 2013. The last rating action in relation to the Company was taken on November 24, 2014. All rating action announcements are available on the akmrating.ru website.
The rating is valid until December 2016. AK&M Rating Agency may revise the rating and/or the outlook during this period if circumstances fundamentally influencing the Company's creditworthiness are revealed.
For estimation purposes, we completely rely on the reliability of information provided by the Company. The rationale for AK&M Rating Agency's judgment on the rating may include information acquired from other sources we deem to be reliable; however, the agency does not check the input data exhaustively and disclaims all responsibility for their possible errors.
This press release is based on the Statement of assignment of a credit rating to CJSC Upravlenie otkhodami. The rating assignment was based on the Credit Rating Methodology for Project Financing Companies rev. February 16, 2015, including the amendments and additions dated October 12, 2015.
The rating, along with any information and conclusions provided in this press release, only conveys our opinion on the Company's creditworthiness 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.
AK&M Rating Agency
Ul. Gubkina 3, Moscow, Russia
Phone no. (495) 916-70-30, fax no.: (499) 132-69-18.