The credit rating of VIS Group (JSC) (hereinafter, VIS Group, or the Company) is based on its strong business profile and stable market position. The regional diversification of the Company’s business operations is assessed as good. The Company’s financial profile includes high profitability and debt coverage. In addition, the Company boasts a good liquidity position and an adequate free cash flow. The Agency also notes that the Company’s debt (except the debt under public-private partnership (PPP) projects, including concessions) is low. The rating is constrained by the Company’s medium size and industry risks. According to ACRA’s classification, the infrastructure construction industry, where the Company implements PPP projects, is highly risky, which puts significant pressure on the rating. At the same time, according to the Agency, road construction is the least risky segment of this industry. The level of industry risk is reduced partially by the fact that almost all of the Company’s portfolio is made up of PPP projects, where the risks associated with infrastructure construction are limited by the terms of PPP agreements.

VIS Group is an investment infrastructure holding. The Company has commissioned 99 industrial and infrastructure facilities nationwide and currently has one of the largest portfolio of concessions and PPP projects in Russia and Europe, including such large and significant projects as the construction and operation of the Khabarovsk Bypass Highway, construction and operation of bridges across Kaliningrad Bay, over the Ob River in Novosibirsk and over the Lena River near Yakutsk. 99% of the Company’s shares are owned by I. A. Snegurov.

KEY ASSESSMENT FACTORS

Strong business profile and good geographic diversification. VIS Group is focused on PPP projects, including concessions, acting as a general contractor that provides a full range of construction and maintenance services. The majority of projects in the Company’s portfolio belong to transport infrastructure (roads, bridges). Others include public facilities (schools, day-care centers, hospitals, and cultural facilities like the State Philharmonic Hall and Arctic Epic and Arts Center in Yakutsk). The Company’s construction division has experience in the construction of social, cultural and industrial facilities (power units for power plants, an administrative and industrial complex of buildings for the gas industry), as well as transport infrastructure. In particular, in 2021, permission was received to commission one of the largest perinatal centers in Russia in Surgut, and currently the first large road construction project of the Company (the Khabarovsk Bypass Highway) is in progress and is at the final stage. The Company’s construction division has secured the portfolio of contracts until 2026. The current backlog is RUB 540 bln. The public parties in the Company’s PPP projects include Russian regions with high credit quality; ACRA notes that there is no concentration on any major customers.

To further reduce subcontracting risks, the Company has plans to decrease the above share, including through acquisition of sub-contractors. In 2020, the Company acquired a contractor for the Khabarovsk Bypass Highway, TranStroy LLC, which strengthened its construction division. The geography of VIS Group’s presence is extensive and covers the Republic of Sakha (Yakutia), the Moscow Region, the Novosibirsk Region, the Khabarovsk Krai, the Kaliningrad Region, the Khanty-Mansiysk Autonomous Okrug – Ugra, and the Yamalo-Nenets Autonomous Okrug.

Good corporate governance. The improvement of the corporate governance assessment is due to the improvement of the Company’s financial transparency as a result of the publication of IFRS statements, the organization of conference calls and the preparation of presentations for investors and analysts.

The Company’s strategy is conservative and provides for the implementation of large and profitable projects in solvent regions. The Company is actively developing PPP projects, including concessions. The ultimate beneficiary is directly involved in managing the Company. The exposure to foreign exchange and interest rate risks is low. VIS Group includes a large number of legal entities, but this is due to the operational needs and the specifics of business, including PPP projects.

Low leverage (excluding leasing) and good coverage. As of the end of 2020, the ratio of total debt (excluding liabilities under concession agreements and leasing) to FFO before net interest payments stood at 2.5x. According to ACRA’s estimates, in 2021–2023 the average annual value of this ratio is expected at about 1x. At the same time, according to ACRA, the average annual ratio of total debt (excluding obligations under concession agreements, but taking into account leasing) to FFO before fixed payments in 2021–2023 will be 1.2x. The Company plans to acquire construction equipment leasing agreements. In addition, the Company’s FFO is expected to rise due to the inflow of funds from PPP projects.

In its leverage estimations, ACRA relies on the indicators of adjusted debt, which excludes liabilities under concession and PPP agreements. This is due to the fact that, according to the terms of the Company’s concession and PPP agreements, senior (bank) debt and junior debt (concessionaire’s/private partner’s contribution) are subject to full compensation in the event of early termination of concession or PPP agreements.

As of June 30, 2021, the Company’s corporate liabilities included bonds, bank loans, loans from associates, and leasing obligations, with bonds accounting for most of the debt portfolio. The debt repayment schedule is balanced for the next three years. Almost all of the Company’s debt is denominated in rubles and has been provided under fixed rates. In 2020, the ratio of FFO before net interest payments to interest payments amounted to 2.8x, and is expected to grow in the future.

Strong industry positions and good profitability. According to ACRA’s estimates, by the end of 2021, the Company’s FFO before net interest payments and taxes should increase by 84% compared to 2020, and in 2021–2023, it is expected to continue growing. This is based on revenues expected from large-scale concession projects. The total volume of the Company’s portfolio of PPP projects due for implementation after July 1, 2021 amounts to RUB 225 bln, which corresponds to a good assessment score for this factor. In 2020, the Company’s FFO margin before interest and taxes amounted to 15%, and in 2021–2023, its average annual value is expected to be 21%. This is a result, among other things, of the Company’s implementation of major PPP projects in transport infrastructure, including Khabarovsk Bypass Highway, Vinogradovo-Boltino-Tarasovka motor road, bridges over the Kaliningrad Bay, and the Lena and Ob rivers.

Good liquidity amid adequate free cash flow. Taking into account the cash balances in the Company’s accounts and deposits (RUB 9.6 bln as of July 1, 2021), ACRA expects the Company’s short-term liquidity ratio to more than 1.5x by the end of 2021. The qualitative assessment of liquidity is high: the Company has been raising funds from the largest banks, including Bank GPB (JSC), Sberbank, and VTB Bank (PJSC), and others, as well as from the debt market. ACRA expects the Company’s free cash flow to be positive in 2021–2023.

KEY ASSUMPTIONS

  • Implementation of all current PPP and concession agreements in full and according to deadlines;

  • Annual growth in production costs not exceeding revenue growth;

  • Company’s expenses for the payment of dividends in line with declared terms and volumes;

  • Annual investments in PPP projects as per plan and contracts;

  • Obligations under PPP projects, including concessions, to be fulfilled on time and in full.

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:

  • FFO before net interest payments and taxes exceeding RUB 30 bln, total debt falling below 2x FFO before net interest payments, and FCF margin exceeding 5%;

  • FFO before net interest payments and taxes exceeding RUB 30 bln, total debt falling below 2x FFO before net interest payments, and FFO margin before interest and taxes exceeding 20%.

A negative rating action may be prompted by:

  • FFO before net interest and taxes falling below RUB 5 bln at the same time as FFO before interest and taxes falling below 12%;

  • Exclusion from PPP contracts, including concession agreements, of the provision on full compensation of senior and junior debt in case of early termination;

  • Significant deterioration in access to external sources of liquidity.

RATING COMPONENTS

SCA: a.

Adjustments: none.

ISSUE RATINGS

Bonds of LLC VIS FINANCE, series BO-P01 (RU000A102952), maturity date: October 12, 2027, put option date: October 20, 2023, issue volume: RUB 2.5 bln — A(RU).

Bonds of LLC VIS FINANCE, series BO-P02 (RU000A102VK5), maturity date: March 22, 2024, issue volume: RUB 2 bln — A(RU).

Rationale. According to ACRA’s methodology, the bond issues represent the Company’s senior unsecured debt, which is secured by a joint guarantee from VIS Group (JSC). Due to the absence of any guarantees from the key operating companies of VIS Group (JSC), ACRA applied a detailed approach to estimate the recovery rate. In accordance with this approach and the Agency’s methodology, the recovery rate on the issues belongs to category II, therefore the credit ratings of the issues are equal to the credit rating of the guarantor, i.e., A(RU).

REGULATORY DISCLOSURE

The credit rating of VIS Group (JSC) and the bond issues of LLC VIS FINANCE (RU000A102952, RU000A102VK5) 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 credit ratings to the above issues.

The credit rating of VIS Group (JSC) and the bond issues of LLC VIS FINANCE (RU000A102952, RU000A102VK5) were published by ACRA for the first time on August 21, 2020, October 20, 2020, and March 26, 2021, respectively. The credit rating of VIS Group (JSC) and its outlook and the credit ratings of the bond issues of LLC VIS FINANCE (RU000A102952, RU000A102VK5) 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 VIS Group (JSC), information from publicly available sources, and ACRA’s own databases. The credit ratings are solicited, and VIS Group (JSC) 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 LLC VIS FINANCE. ACRA provided additional services to VIS Group (JSC). No conflicts of interest were discovered in the course of the rating process.

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