The credit rating of G-Group JSC (former G-group LLC, hereinafter, the Company, or G-Group) has been upgraded in view of an increase in the weighted average FFO before net interest and tax, which is positive for the Company's size, leverage, coverage and project diversification scores. The credit rating is based on the strong market position and operating risk profile, high profitability, strong liquidity, low leverage, and very high debt coverage. At the same time, the rating is constrained by the very high industry risk and the medium size of the Company.
G-Group operates in the residential and commercial real estate sectors. The Company sells residential and non-residential properties (enjoying a leadership position in Kazan), constructs and leases retail and office properties, and operates hotel facilities. Unistroy, the G-Group’s brand, ranks 75th in Russia in terms of housing projects in progress (217,900 sq. m as of September 2021), 25th in terms of housing projects completed in 2020 (167,000 sq. m; 173,400 sq. m with recessed and protruding balconies and terraces included), and 14th in terms of housing projects completed as of September 2021 (167,600 sq. m), according to the Unified Register of Developers.
Key assessment factors
Industry risk is assessed as very high due to the pronounced cyclical nature of the sector, high overdue debt, and substantial number of defaulted companies in the last five years. The Company’s industry is a very strong factor constraining its credit rating.
The Company's performance in 2020. Last year, the Company increased its sales of residential houses both in physical (+ 30.6%) and monetary (+ 33.3%) terms. In early December 2020, the KazanMall shopping center was put into operation, which, in ACRA's opinion, will bring the Company about RUB 900 mln of revenue and about RUB 600 mln of FFO before net interest and tax in 2021. In 2020–2021, the Company significantly expanded its portfolio of projects, which will be reflected in a significant increase of the financial performance of G-Group starting from 2022.
Low leverage and very high coverage. When calculating the ratio of net debt to FFO before interest and tax, ACRA adjusts the total debt of the Company by the debt raised as part of project finance using escrow accounts and secured by funds deposited to escrow accounts by buyers. The weighted average ratio of net debt to FFO before net interest for 2018–2023 is estimated by the Agency at 1.6x. The Company’s debt is entirely denominated in rubles. The repayment schedule is extremely comfortable. The lender structure is fairly diversified.
In assessing the interest coverage, the Agency took into account the interest payments on the general corporate debt, while the interest payments on project financing were included in the prime costs. The weighted average ratio of FFO before net interest to net interest for 2018–2023 is estimated by ACRA at 9.1x.
The strong liquidity assessment of the Company is mostly based on the high positive cash flow (adjusted for costs of projects implemented using escrow) expected in 2021–2023 and the extremely comfortable debt repayment schedule.
Key assumptions
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Construction projects to be completed and sales targets to be met as planned;
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ACRA’s estimates include only projects under construction and projects to be commissioned in accordance with the current financial plan of the Company;
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No significant price drops in the primary real estate market in 2022–2023.
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:
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The weighted average ratio of adjusted net debt to FFO before net interest decreasing below 1x;
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The weighted average ratio of adjusted total debt to capital decreasing below 0.5x and the current construction portfolio exceeding 500,000 sq. m.
A negative rating action may be prompted by:
- The weighted average ratio of FFO before net interest to interest declining below 8x, along with the weighted average ratio of adjusted net debt to FFO before net interest exceeding 2x and the weighted average adjusted FCF margin turning negative;
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An over 15% price drop in the primary residential real estate market in 2022–2023;
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Regulatory changes that can significantly affect the Company’s performance.
Rating components
Standalone creditworthiness assessment (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 G-Group JSC was published by ACRA for the first time on October 2, 2019. The credit rating of G-Group JSC 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 G-Group JSC, information from publicly available sources and ACRA’s own databases. The credit rating is solicited, and G-Group JSC participated in its assignment.
In assigning the credit rating, 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 G-Group JSC. No conflicts of interest were discovered in the course of credit rating assignment.
