Press Releases / 14.11.2016
Press Release as of 14.11.2016
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 approved by the Methodology Committee on October 12, 2015 and February 25, 2016.
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 three 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, loan 4-02-76600-H for a total amount of RUB 1.7 billion and loan 4B02-01-76600-H for a total amount of RUB 1.85 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 actual availability of guarantees from the regions for the financed projects, a flexible bonded debt repayment scheme, sufficient positive cash flows to cover the debt servicing and repayment liabilities, the diligence in meeting the coupon payment obligations, the Company's performance above the target levels of consolidated net cash flow and consolidated cash flow balance, growing assets and revenues, as well as low construction and operation risks under the project.
The key positive rating driver 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 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, April 29, 2027 for issue 4B02-01-76600-H.The borrower, however, has an option to make advanced loan repayment at its discretion. This increases the Company's capability to control the amount of financial debt and to meet related obligations.
CJSC Upravlenie otkhodami maintains a high modified internal rate of return, with sufficient coverage of all expenses for the servicing and repayment of obligations by positive cash flows. The minimum internal rate of return for the Company's consolidated projects is 17.98% implying a payback period of six years, which is fairly good for an infrastructure project. 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 consolidated debt coverage ratio on the projects reaches 5.2. Therefore, the expected projected cash flows generated by the project are sufficient for the servicing and repayment of the bonded loan-related obligations.
At the current stage of implementation of the Company's projects, the only mandatory component of the bonded debt servicing scheme is the timely payment of coupons on the bonds. Over the period from the floating of its first bonded loan to November 1, 2016, CJSC Upravlenie otkhodami made all the necessary coupon payments successfully and in due time.
In 2015, the Company's annual consolidated net cash flow was projected at RUB -803.8 million, which means that the Company expected a loss. However, the actual annual consolidated net cash flow was RUB 32.7 million, as follows from the Company's official report. The consolidated net cash flow balance, one of the key economic indicators, was also far above expectations in 2015 (RUB 411.2 million at the end of 2015 against a mere RUB 38.2 million expected, i.e. more than ten times above the target level). The consolidated net cash flow and its balance are an evidence of high creditworthiness of CJSC Upravlenie otkhodami, which implies that the Company will achieve its objectives and maintain high creditworthiness in 2016-2017.
CJSC Upravlenie otkhodami is further expanding its business. The Company's consolidated assets for the 12-month period ending on July 1, 2016 increased 1.8 times to RUB 7,415.6 million, revenue from services increased 2.5 times to RUB 602.0 million. At the start of the second half of 2016, the Company's financial stability ratio (equity plus long-term debt to total assets ratio) was 0.98, which means that the current financial condition of the Company's business can be regarded as rather stable. The continuing business expansion combined with the ability to maintain sufficient financial stability contributes to the Company's rating.
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 heavy borrowings raised to finance the activity of CJSC Upravlenie otkhodami is a major rating constraint for the project. The debt arising from the long-term bonds issued by CJSC Upravlenie otkhodami and CJSC Upravlenie otkhodami - NN currently reaches RUB 6.1 billion. The percentage of borrowed capital in the financing of capital expenses at the initial stage of projects approaches 100%. The Company's current debt load ratio (net debt / EBITDA) is fairly high reaching 45.07 in the 12-month period ending on July 1, 2016.
According to available forecasts, the total amount of coupon payments until December 2017 reaches approximately RUB 670 million. The maximum amount of coupon payments is due in 2017 when coupons on the loans of series 4-01-76600-H, 4-02-76600-H and 4-01-20453-P for a total amount of RUB 614.5 million will need to be paid. It should be noted that the coupon rates on the loans of series 4-01-76600-H and 4-02-76600-H will be higher than in the previous annual period (compared, among others, with the rates previously projected for the forthcoming 12-month period). The coupon rate on the loan of series 4-01-76600-H will reach 16.9% (the previous level being 15.4%, the historical lowest coupon rate for this issue being 9.5%); the next coupon rate for the loan of series 4-02-76600-H is also 16.9%, but the previous rate was 11%. The higher coupon rates in the forthcoming 12-month period for the greater part of the Company's bond debt bear risks of more expensive borrowings, which obviously constrains the credit rating of CJSC Upravlenie otkhodami.
Amidst a continuing economic and a social / economic downturn in Russia, the risk of lower-than-projected incomes due to poor collectability of utility payments becomes of special importance among the potential rating constraints for CJSC Upravlenie otkhodami; long-term forecasts of utility payment collectability trends have a certain element of uncertainty. The general financial difficulties also give rise to certain administrative risks influencing, among others, the key tariff approval and annual revision process.
Full name: Closed Joint-Stock Company Upravlenie otkhodami
Short name: CJSC Upravlenie otkhodami
Location: Varshavskoye Highway 95 bld. 1, 117556 Moscow, Russia
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 approved by the Methodology Committee on October 12, 2015 and February 25, 2016.
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 December 17, 2015. All rating action announcements are available on the akmrating.ru website.
The rating is valid until November 2017. 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.
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.
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