The credit rating of J-S.C. "PIONEER GROUP" (hereinafter, PIONEER, the Company, or the Group) is based on its very high profitability, very low leverage, very high coverage indicators, and strong assessments of the business profile and liquidity and cash flow, and the average assessment of the Company’s operating risk profile. On the other hand, the rating is under pressure from the very high industry risk.
PIONEER has operated in the real estate market since 2001, and today is a leading developer in Moscow and Saint Petersburg. The Company is among the top seven developers in Moscow in terms of sales of flats and apartments (according to Metrium as of H1 2020). The Company is focused on the construction of comfort and business class residential buildings, as well as commercial real estate properties. The total floor area of projects at design and construction stages in the Company’s current portfolio is 1.3 mln sq. m. (as of August 31, 2020).
Key rating assessment factors
Impact of the coronavirus pandemic on the Company’s operations. The pandemic has not led to a substantial deterioration in the Company’s financial and operational indicators. In H1 2020, the Company’s revenues grew by 19% compared to the same period last year, while gross profitability increased from 35% (in H1 2019) to 38% (in H1 2020). Revenues and profitability have improved as a result of higher prices on the back of increased demand (following the lowering of mortgage interest rates due to the substantial lowering of the key rate and launch of the subsidized mortgage program) and simultaneous decline in supply after the sector’s transition to escrow accounts. The average growth of sales prices for the Company’s projects amounted to around 10% in H1 2020.
The industry risk is assessed as very high due to the 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.
Medium operating risk profile assessment. 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 building construction segment. The Company’s project portfolio is well diversified in terms of the number of projects. On the other hand, the share of sales in the largest project over the next three years should exceed 25% according to ACRA’s estimates. The sales plan is balanced, and the Company’s portfolio includes both multi-stage and single-stage projects. The construction timeline is well coordinated with the sales timeline. The Group’s strategy is consistent, and its effectiveness is confirmed by its successful track record. The Company effectively manages operational, legal, tax, and market risks. The organizational structure of the Group is complicated due to specific requirements of Russian law. ACRA assesses the Company’s financial transparency as high. The Company publishes IFRS financial statements on a semi-annual basis, and a number of internal corporate documents are disclosed on the Company’s official website.
Very low debt load and very high coverage indicators. In 2019, the Company began participating in a development project in New York, which is being carried out using a project loan. Loan interest is capitalized before the project is completed. As the conditions of the loan do no provide for recourse to the Company, and the debt will be serviced and repaid using cash flows from the project, ACRA has adjusted the Company’s total debt for the size of this loan. When calculating the ratio of net debt to FFO before interest payments and taxes, ACRA adjusted the total debt raised for escrow account project finance by the size of funds held on escrow accounts. The average weighted ratio of adjusted net debt to FFO before net interest payments for 2017–2022 is estimated by ACRA at 0.3x. The average weighted ratio of FFO before net interest payments to net interest payments for 2017–2022 is estimated by ACRA at 9.2x.
Key assumptions
- Implementing the construction and sales plans;
- ACRA only took into account 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:
- Average weighted FFO before net interest payments and taxes exceeding RUB 30 bln;
- Growth of average weighted FCF profitability of over 10%.
A negative rating action may be prompted by:
- The ratio of average weighted adjusted net debt to FFO before net interest payments exceeding 2x and the ratio of FFO before net interest payments to net interest payments falling below 5x;
- Regulatory changes that may impair the Company’s financials.
Rating components
SCA: bbb+.
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 J-S.C. "PIONEER GROUP" was published by ACRA for the first time on November 25, 2019. 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 have been 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.
