The credit rating of JSC «Laut» (hereinafter, the Company) is based on the Company’s high leverage, very low debt payment coverage, and weak liquidity. The rating is still supported by a strong business profile and the liquidity injection the Company expects from its shareholder. This year, restrictions on shopping centers due to the coronavirus pandemic had a strong impact on the Company’s operating activities and, as a result, its cash flows. The “Rating under revision: developing” status reflects ACRA’s view of the significant impact on the Company’s creditworthiness that the expected support from its shareholder may have.
The Company owns and operates the Salaris shopping center, whose gross building area (GBA) covers 308,000 square meters, with 105,000 square meters of gross leasable area (GLA). The Company is part of the Plaza B. V. group (hereinafter, the Group), which operates and manages commercial real estate. The Group is also involved in investment activities and development. The Group’s projects include the Salaris shopping center, the Paveletskaya Plaza shopping center, and IFC Columbus.
Key rating assessment factors
Restored traffic and cash flow after lifting of quarantine measures. Given the restrictive measures taken to combat the spread of COVID-19, ACRA expects a significant decrease in the Company’s net operating income (NOI) compared to the pre-crisis scenario. In its calculations, ACRA assumes that the recovery of the Company’s traffic and cash flows observed since the beginning of June will continue until the end of the year. In April–May, the Salaris shopping center continued to operate with a minimum utilization rate of about 25%. Since June, the shopping center has seen a gradual return to normal. According to the schedule of lifting quarantine restrictions, non-food stores resumed operation on June 1, hairdressers and beauty salons on June 9, restaurants, food courts, and fitness centers on June 23, children’s entertainment centers and other entertainment and leisure facilities on July 13, while movie theatres are expected to open on August 1. By mid-July, the shopping center’s traffic had returned to the level of September 2019. Continued restrictions at Vnukovo international airport, which reduced transit traffic in the passenger hub, will continue to limit the growth of traffic after August 1. If the restrictions are lifted completely and there are no additional negative factors, consumer traffic should return to last year’s level at the beginning of Q4 2020.
High leverage, very low debt service indicators, and weak liquidity. The Company’s weighted average total debt to NOI ratio for 2020−2022 should equal 16.1x. The weighted average NOI to payments ratio for 2020−2022 should amount to 0.73x. By 2022, leverage should decrease and payment coverage should improve to 10.1x and 0.96x, respectively. In the short term, the Company’s financial stability is supported by the absence of planned debt repayments in 2020 and the postponement of interest payments for Q1−Q3 2020 to the end of Q4. The Company will be able to meet its interest payment obligations at the end of the year due to expected liquidity injections from its shareholder.
Key assumptions
- Decrease in NOI for 2020 by approximately 50% compared to the pre-crisis scenario;
- Shareholder providing no less than RUB 1.55 bln in liquidity in 2020;
- Growth in rental rates by 10−15% in 2021 and 2022 and by 5% annually in subsequent years;
- Maintaining a very high utilization rate in 2021–2022.
Potential outlook or rating change factors
The “Rating under revision: developing” status assumes that the rating may be changed within the next 90 days.
Removal of the “Rating under revision: developing” status and affirmation or upgrade of the credit rating may be prompted by:
- Reduced leverage via the provision of additional funds by the shareholder;
- Recovery of planned pre-crisis NOI indicators.
Removal of the “Rating under revision: developing” status as well as downgrade of the credit rating may be prompted by:
- Late provision of funds from the shareholder needed to service interest payments in December 2020;
- New wave of COVID-19 and reimposed restrictions on the operations of shopping centers within the forecast period;
- Significant deterioration in the macroeconomic situation in Russia and critical deterioration in the population’s purchasing power;
- Deterioration of the Company’s liquidity indicators and difficulty in servicing debt obligations.
Rating components
SCA: b+.
Adjustments: none.
Issue ratings
No outstanding issues have been rated.
Regulatory disclosure
The credit rating has been assigned 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.
The credit rating of JSC «Laut» was published by ACRA for the first time on February 4, 2020. The credit rating and its outlook are expected to be revised within 90 days following the publication date of this press release.
The credit rating was assigned based on the data provided by JSC «Laut», information from publicly available sources, as well as ACRA’s own databases. The credit rating is solicited, and JSC «Laut» participated in its assignment.
No material discrepancies between the provided data and the data officially disclosed by JSC «Laut» in its financial statements have been discovered.
ACRA provided no additional services to JSC «Laut». No conflicts of interest were discovered in the course of credit rating assignment.
