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 bonded loan of series 4-01-76600-H issued by CJSC Upravlenie otkhodami at 'A+'. The outlook is stable.
The 'A' rating indicates that bonded loan no. 4-01-76600-H issued by CJSC Upravlenie otkhodami qualifies as a debt instrument with a very high degree of creditworthiness. 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.
Bonded loan of series 4-01-76600-H for a total amount of RUB 2.8 billion issued by CJSC Upravlenie otkhodami was placed on November 20, 2013. The bonds have a tenor of 3,834 days (10.5 years) with final maturity on May 7, 2024. CJSC Upravlenie otkhodami placed the bonds with the aim of raising financial resources in the securities market to finance and implement the project of creating and subsequently operating a utility infrastructure asset in Saratov region, namely, a solid domestic waste treatment and disposal (burial) system comprising waste landfill sites, waste transfer stations, waste recycling plants and bio-composting shops. The project is being implemented under a public private partnership scheme. For the purpose of the project, a concessionary agreement specifying CJSC Upravlenie otkhodami as the concessionary and Saratov region (the environment conservation committee of Saratov region) as the concession provider (hereinafter referred to as the concessionary agreement) was concluded for a period of 25 years. The total cost of creating the facilities provided for by the concessionary agreement is approximately RUB 2.2 billion. The initial stage of the capital investment project was financed with borrowed capital, primarily with bonded loan 4-01-76600-H. At the next stages, the company will self-finance capital expenses.
The main positive rating drivers for bonded loan 4-01-76600-H issued by CJSC Upravlenie otkhodami include the high rating ('A+', with a stable outlook) assigned by AK&M Rating Agency to the issuer, the actual guarantees from Saratov region for the project financed with the bonded loan, a flexible debt repayment scheme, sufficient positive cash flows to cover the debt servicing and repayment expenses, the issuer's diligence in meeting the coupon payment obligations, as well as low construction and operation risks associated with the project.
One of the main positive rating drivers for bonded loan 4-01-76600-H is the high rating ('A+', with a stable outlook) assigned by AK&M Rating Agency to CJSC Upravlenie otkhodami, the bond issuer. The rating is primarily motivated by the advanced level of the investment project to build and operate a utility infrastructure asset (a solid domestic waste treatment and disposal / burial system) in Saratov region, the issuer's healthy financial position and experience in implementing waste management projects.
Another key argument for the high bonded loan rating is the availability of guarantees provided by the government of Saratov region for the project implemented. The concessionary agreement between Saratov region and CJSC Upravlenie otkhodami provide for the complete reimbursement of principal debt and interest payments on bond issues should the concessionary agreement be terminated (should the concessionary default on its obligations, among other reasons). The bonded loan obligations shall be discharged even if the project or its implementation faces contingencies including considerable deterioration of the project's financial metrics. Besides, under the concessionary agreement, the waste treatment and disposal / burial tariff is based on the Company's expenses and includes a standard profit derivative of the amount of expenses, which guarantees the break-even level and even profitability of the Company's operations.
The flexibility of the bonded loan repayment scheme also contributes to the rating. While the loan has a certain maturity date (May 7, 2024), the borrower has an early repayment and retirement option. This flexibility ensures the issuer's reasonable capacity to meet its obligations arising from the bonded loan.
The Saratov project of CJSC Upravlenie otkhodami has 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 Saratov project is 23.5% implying a payback period of four to five years, which is fairly good for an infrastructure project; besides, the modified internal rate of return for the Saratov project is above the average level for the Company's consolidated projects as a whole. 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 facilities are normally above 1. Average annual debt coverage ratio for the Saratov project is 3.8, while average debt load ratio (Net Debt to EBITDA) is 1.56. Therefore, the expected projected cash flows in terms of the project financial model are sufficient to meet the servicing and repayment obligations as regards bonded loan 4-01-76600-H issued by CJSC Upravlenie otkhodami.
We appreciate the Company's diligence in meeting its current coupon payment obligations in relation to bonded loan of series 4-01-76600-H for the whole past bond circulation period and the practice of gradually redeeming its bonds, which we regard as a positive signal for the credit rating of this loan.
The high bonded loan rating is also essentially supported by the low risks immediately related to the construction and operation of the facilities under the concessionary agreement, relative simplicity of the facilities and highly proven operation techniques.
The key rating constraints for bonded loan 4-01-76600-H of 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 percentage of borrowed capital in the financing of capital expenses at the initial stage of the project approaches 100%.
Given the magnitude of borrowings, the growing amount of coupon payments in 2017 resulting from higher coupon rates amidst today's faster inflation rates is a notable risk factor for the project. The second coupon rate on bond issue 4-01-76600-H increased considerably to 15.4% against the first coupon rate of 11%. The third coupon rate will further increase to 16.9% in 2017. According to available forecasts, the total amount payable on bond issue 4-01-76600-H in 2017 is RUB 295.6 million.
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 Saratov region 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
This press release is based on the Statement of assignment of a credit rating to bonded loan of series 4-01-76600-H issued by 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 bond issue 4-01-76600-H of CJSC Upravlenie otkhodami on October 9, 2013. The last rating action in relation to the bond issue 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.
AK&M Rating Agency
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Phone no.: (495) 916-70-30, fax no.: (499) 132-69-18.