The credit rating of Rissa Investments Limited (hereinafter, the Company, or the Group) reflects the Company's low leverage, leading market positions, high profitability, and well-known brands in the Company's portfolio. The rating is limited by high capital expenses resulting in a negative free cash flow (FCF).
Despite the decline in sales-in-kind in 2020, the Company's financial risk profile assessment has not changed. At the same time, ACRA notes a certain improvement in the Company's corporate governance practices.
Rissa Investments Limited is a holding company that consolidates bottled water production assets in Russia, Georgia, and Ukraine. The portfolio of the Company’s brands includes Borjomi, Saint Spring, and others. The key shareholder of the Group is Alfa Finance Holdings Limited.
Key rating assessment factors
The revenue is stable and the margins are still high. The Company's revenue for 2020 amounted to RUB 33.5 bln, which is 2.4% higher than in 2019. At the same time, the Agency notes a decrease in the Company's sales-in-kind, which was largely caused by the COVID-19 restrictions imposed in 2020. One of the drivers of revenue growth in the coming years may become a new production and logistics complex being built in the Moscow Region. According to ACRA's calculations, FFO before net interest payments and taxes amounted to RUB 7.1 bln in 2020, which corresponds to the medium score for the Company's size as per the Agency's methodology. In 2021–2023, ACRA expects the growth rate of the above indicator to be the same as the revenue growth rate, which will allow the Company to maintain the high level of FFO margin before net interest payments and taxes (19–22%).
The corporate governance practices have improved. In 2020–2021, the Company formalized some of its previously non-regulated corporate governance processes. ACRA draws special attention to the fact that the Company has done significant work to develop the risk management system; it has also reduced the total share of foreign currency debt in the loan portfolio. The Company's strategy is mostly based on the business plan, which is reviewed on a regular basis by, among others, third-party advisers. The Company has a 13-member board of directors, one of which is an independent director. The structure of the Group is complicated, which is largely due to the Group's presence in multiple jurisdictions and the specifics of its business. The Company prepares consolidated IFRS financial statements audited by EY.
The Company's leverage is still low. According to ACRA's estimates as of the end of 2020, the Company's total debt expressed in rubles amounted to RUB 9.9 bln, which is 11% higher than in 2019. In addition, in Q1 2021, the Company issued ruble-denominated bonds (bonds of Borjomi Finance LLC rated at A-(RU)), which made it possible to refinance a significant portion of the foreign currency debt. After the refinancing, the Company's loan portfolio includes 88% of ruble-denominated liabilities and 12% of liabilities denominated in other currencies. The total debt to FFO before net interest payments for 2020 was 1.7x, which corresponds to the low score. ACRA assumes an increase in the total debt in 2021–2022 due to the peak in capital expenses, which may increase the ratio up to 2.0–2.1x. The Company's debt servicing indicators are high: the ratio of FFO before net interest payments to interest payments was 8.0x at the end of 2020, which is assessed by the Agency as a high level of coverage.
Medium liquidity and weak cash flow. In 2021–2022, the Company is going to get through a peak of capital expenses. The 2020 CAPEX amounted to RUB 5.0 bln (15% of revenue). The Company's current key investment project is the construction of a production and logistics complex in the Moscow Region. ACRA expects a further increase in the ratio of CAPEX to revenue in 2021, which would indicate a high pressure on the Company's cash flow. Subsequently, the Agency expects the ratio to improve to 10%.
According to ACRA's expectations, 2021 may become a peak year in the Company's CAPEX program, which in turn may push the FCF margin down to -22%. However, in 2022, the FCF margin, according to the Agency's forecasts, may return to the near-zero level. The negative FCF puts pressure on the liquidity assessment. The debt repayment schedule is smooth.
- The average annual increase in the price of products equal to the inflation rate in 2021–2023, while maintaining or a slight increase (+5–10%) in the production volume;
- Reduction in capital expenses starting from 2022;
- Preservation of the current geography of business;
- No dividend payouts and a negative FCF;
- Maintaining access to external sources of liquidity.
Potential outlook or rating change factors
The Positive outlook assumes that the rating will most likely change within the 12 to 18-month horizon.
A positive rating action may be prompted by:
- A decline in the weighted average ratio of total debt to FFO before interest charges below 1.0x and a growth in the weighted average ratio of FFO before net interest charges to interest charges above 8.0х;
- Positive weighted average FCF margin;
- Further significant improvement in the corporate governance practices.
A negative rating action may be prompted by:
- A growth in the weighted average ratio of total debt to FFO before interest charges above 2.0x
- A decline in the weighted average ratio of FFO before net interest charges to interest charges below 5.0х
- A decline in the FFO margin before interest charges and taxes below 8%;
- Dividend payouts and a negative FCF;
- Worse access to liquidity sources.
Standalone creditworthiness assessment (SCA): a-.
Bond issued by Borjomi Finance LLC (RU000A102SK1), maturity date: February 20, 2026, issue volume: RUB 7 bln, — A-(RU).
Credit rating rationale. The issue represents senior unsecured debt of Borjomi Finance LLC, a subsidiary of Rissa Investments Limited. The credit rating is based on the guarantee from Rissa Investments Limited, the public irrevocable offers from the Group’s trading companies (IDS Borjomi Beverages Co. N. V., Curacao, and LLC “IDS Borjomi (Moscow)”), its plants in Russia (LLC “Aqua Star” (Kostroma) and LLC “Edelweiss L” (Lipetsk)), and Georgia-based IDS Borjomi Georgia LLC. Despite the existence of suretyships from the key operating companies of Rissa Investments Limited, ACRA applied a detailed approach to assess the reimbursement rate due to a significant amount of secured debt and a noticeable time difference between the dates of bond purchases for different groups of offerors. According to this approach, the recovery rate for the issue, as per the Agency’s methodology, is classified into category II, and therefore the credit rating of the issue is equaled to the credit rating of Rissa Investments Limited, i. e. A-(RU).
The credit ratings of Rissa Investments Limited and the bond (ISIN RU000A102SK1) issued by Borjomi Finance LLC, a subsidiary of Rissa Investments Limited, were 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 Methodology for Assigning Credit Ratings to Individual Issues of Financial Instruments on the National Scale for the Russian Federation was also applied to assign a credit rating to the above bond issue.
The credit ratings assigned to Rissa Investments Limited and the bond (ISIN RU000A102SK1) issued by Borjomi Finance LLC were published by ACRA for the first time on May 21, 2020 and February 26, 2021, respectively. The credit rating of Rissa Investments Limited and its outlook and the credit rating of the bond (ISIN RU000A102SK1) issued by Borjomi Finance LLC are expected to be revised within one year following the publication date of this press release.
The credit ratings were assigned based on the data provided by Rissa Investments Limited, information from publicly available sources, as well as ACRA’s own databases. The credit ratings are solicited, and Rissa Investments Limited participated in their assignment.
In assigning the credit ratings, ACRA used only information, the quality and reliability of which was, in ACRA's opinion, appropriate and sufficient to apply the methodologies.
ACRA provided no additional services to Rissa Investments Limited and Borjomi Finance LLC. No conflicts of interest were discovered in the course of the rating process.