The credit rating assigned to J-S.C. "PIONEER GROUP" (hereinafter, Pioneer, the Company, or the Group) is based on its very high profitability, very low leverage, very high indicators in coverage and geographic diversification, and strong assessments of business profile, corporate governance, liquidity and cash flow. On the other hand, the rating is under pressure from the very high industry risk and the medium market position assessment.
Pioneer has been in the real estate market since 2001, and today it is a leading developer in Moscow and Saint Petersburg. According to Urbanus.ru, as of end-November 2018, the Company was among top 10 developers in Moscow in terms of sales of flats and apartments, and, according to Metrium, in 2018, it was among top 10 developers operating in the historic areas of Moscow. The Company is focused on the construction of comfort and business class residential buildings, as well as commercial real estate. The total floor area of projects in the Company's current portfolio is 1.7 mln sq. m.
Key rating assessment factors
The industry risk is assessed as very high due to a pronounced cyclical nature of the sector, high amount of overdue debt, and substantial number of companies that have defaulted in the last five years. The industry the Company belongs to is a very strong factor limiting the credit rating.
The medium market position. The Company is a successful player in the residential real estate market, in both comfort and business class segments, a leader in the serviced apartment market, and a competitive player in the office buildings construction segment. The share occupied by the Company in its main region of presence (Moscow) amounted to 3.16% in 2018.
The strong business profile. The Company implements housing projects in both comfort and business segments. The project portfolio is well diversified, as the shares of residential real estate / apartments / commercial real estate are 74% / 11% / 15%, respectively. About one third of the residential real estate projects relate to business class and two thirds to comfort class. The sales plan is balanced, and the Company's portfolio includes both multi-stage and single-stage projects. Historically, Pioneer managed to sell almost 100% of floor area before a project is commissioned, and the Company generally overrun its 90% sales target. According to the Unified Resource of Developers, over the past three years, the Group has not been in a delay on any of its projects for more than a month. In accordance with ACRA's methodology, the lack of in-house manufacturing capacities and the reliance on subcontractors have a limiting effect on the business profile assessment.
The high corporate governance assessment. The Company's strategy implies an organic growth, without major changes in the business structure, supported by the careful selection of projects (with minimum gross margin above 25% and IRR above 30%) and a conservative risk assessment approach. The Group’s strategy is consistent, and its effectiveness is confirmed by its successful track record. As the main target of its financial strategy, the Company declares the leverage (debt/EBITDA ratio) not higher than 3x. Due to certain legislative changes, the future target will be the ratio of net debt, including escrow accounts, to EBITDA, not exceeding 1x. The risk management function is based on the regulations on risk management and internal control. The Company is effective in managing operational, legal, tax and market risks. All intragroup and external settlements are carried out in Russian rubles. The organizational structure of the Group is complicated, which is explained by the specific requirements of the Russian legislation. The Agency assesses the Company's financial transparency as high. The Company publishes its IFRS financial statements on a semi-annual basis, and a number of internal corporate documents are disclosed on the official corporate website.
The very high profitability and coverage indicators and the very low leverage. Most of the Company's projects have been sold for prices exceeding the market average, so the average weighted FFO margin before net interest charges and taxes for the period from 2017 to 2022 is estimated by the Agency at 20.3%. For the purpose of leverage assessment, ACRA has adjusted the total debt for the project finance amount fully secured by funds held on buyers' escrow accounts. The average weighted ratio of net debt to FFO before net interest charges for 2017–2022 is estimated at 0.24x. The peak of debt repayments is expected in 2020, but it will not be burdensome for the Company. The portfolio of bank loans is highly concentrated, while bond loans comprise about 30% of the debt portfolio. The Company has plans to cut the share of corporate bank loans in favor of bonds. The weighted average ratio of FFO before net interest charges to net interest charges for 2017–2022 is estimated at 9.46x.
Key assumptions
- Implementing the construction and sales plans;
- ACRA took into account only projects under construction and projects expected to be commissioned in accordance with the financial plan of the Company;
- Dividend payments in the forecast period close to historical levels.
Potential outlook or rating change factors
The Stable outlook assumes that the rating will most likely stay unchanged within the 12 to 18-month horizon.
A positive rating action may be prompted by:
- the average weighted FFO before net interest charges and taxes exceeding RUB 30 bln.
A negative rating action may be prompted by:
- the ratio of average weighted net debt/FFO before net interest charges going up above 1x and the ratio of total debt/equity going up above 0.5x;
- the average weighted ratio of FFO before net interest charges/net interest charges going down below 8x;
- regulatory changes that may impair the Company's financials.
Rating components
Standalone creditworthiness assessment (SCA): bbb+.
Adjustments: none.
Issue ratings
No outstanding issues have been rated.
Regulatory disclosure
The credit rating was assigned to J-S.C. "PIONEER GROUP" under the national scale for the Russian Federation based on the Methodology for Credit Ratings Assignment to Non-Financial Corporations under the National Scale for the Russian Federation, and the Key Concepts Used by the Analytical Credit Rating Agency within the Scope of Its Rating Activities.
A credit rating has been assigned to J-S.C. "PIONEER GROUP" for the first time. The credit rating and its outlook are expected to be revised within one year following the publication date of this press release.
The credit rating was assigned based on the data provided by J-S.C. "PIONEER GROUP", information from publicly available sources, as well as ACRA’s own databases. The credit rating is solicited, and J-S.C. "PIONEER GROUP" participated in its assignment.
No material discrepancies between the provided data and the data officially disclosed by J-S.C. "PIONEER GROUP" in its financial statements were discovered.
ACRA provided no additional services to J-S.C. "PIONEER GROUP". No conflicts of interest were discovered in the course of credit rating assignment.
