The credit rating of "GROUP OF COMPANIES FSK" LLC (hereinafter, the Company, or FSK) is based on its strong market position, very strong business profile and geographic diversification assessments, high profitability, very low leverage, very high debt coverage, strong liquidity, and medium cash flow assessment. At the same time, the Company’s rating is mainly limited by a very high industry risk, as well as low assessments of the group structure and financial transparency.
FSK is one of the largest players in the residential real estate market in the Moscow area and Russia as a whole. According to the Unified Register of Developers, it ranked fifth in the country in terms of volume of the current construction portfolio as of the start of August 2022 and third in terms of housing sales in Moscow and the Moscow Region in 2021.
key assessment factors
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 defaulted companies in the last five years. The industry the Company belongs to is a very strong factor that limits its credit rating.
Results for 2021 and forecast for 2022. The volume of the Company’s sales grew by 70% in monetary terms in 2021, which was mainly due to higher average sales prices (which were the result of both an overall increase in prices and growth of the share of sales in the high margin segment). Growth of sales in physical terms amounted to 5.2% (504,100 sq. m in 2021 vs. 479,200 sq. m in 2020).
Prices and volumes of sales continued to grow in Q1 2022 on the back of heavy demand in March. Sales declined significantly in Q2 due to growth of mortgage rates and the realization of pent-up demand in the previous quarter. In July, after mortgage rates returned to a comfortable level, sales in monetary terms recovered to the indicator recorded in January 2022. Although the number of transactions in July this year amounted to around 70% of the indicator for July last year, reservations exceeded the figure for July 2021 by 7%, which indicates an expected recovery of demand.
In ACRA’s opinion, the decrease in mortgage rates allows the Agency to expect a recovery of demand in the primary housing market in H2 2022, while the Agency does not forecast a significant decrease in prices. Economic uncertainty forces the Company to postpone decisions to start carrying out new projects, while supply stemming from completed projects has declined considerably due to record demand in 2021 and Q1 2022. Besides this, housing market consolidation, which began in 2019 due to the transition to escrow accounts, is continuing. As a result, the Agency expects supply to decline in the primary housing market before the end of this year. At the same time, thanks to the transition to project financing, unlike in previous crises, companies do not need to make sharp price cuts in order to raise money to complete construction work. In addition, in 2022, as in 2020, demand is refocusing from the secondary market to the primary one. These factors prevent prices from falling in the primary market and help support developers’ profitability.
Very high debt coverage and very low leverage. When calculating the ratio of net debt to FFO before interest and taxes, ACRA adjusts total debt for the amount of debt raised as part of project finance using escrow accounts and fully covered by client funds available on escrow accounts. In 2021, the ratio of adjusted net debt to FFO before net interest payments taking into account shareholder debt was 1.52x; ACRA expects this indicator to fall below 1x in the future. The ratio of FFO before net interest payments to net interest payments was 21x in 2021, and the weighted average indicator for 2020–2025 is assessed by the Agency at 14.5x.
The Company’s strong liquidity assessment is based on the significant volume of cash in its accounts, as well as the substantial size of open credit lines, excluding project debt under escrow accounts.
key assumptions
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Fulfillment of the planned terms of construction and sales;
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ACRA only took into account projects under construction and projects expected to be completed in accordance with the Company’s financial plan;
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No substantial decline in real estate prices in the primary market of the Moscow area in 2023–2025.
potential outlook or rating change factors
The Stable outlook assumes that the rating will highly likely stay unchanged within the 12 to 18-month horizon.
A positive rating action may be prompted by:
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Improvement of the group structure and financial transparency assessments.
A negative rating action may be prompted by:
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Ratio of FFO before net interest payments to net interest payments declining below 8x;
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Weighted average FFO margin before net interest payments and taxes falling below 12% at the same time as weighted average ratio of adjusted net debt to FFO before net interest payments exceeding 2x;
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Residential housing prices in the primary market of the Moscow area falling by more than 10% in 2023–2025;
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Regulatory changes that entail potential material adverse effects on the Company’s performance.
rating components
Standalone creditworthiness assessment (SCA): a-.
Adjustments: none.
issue ratings
There are no outstanding issues.
regulatory disclosure
The credit rating has been assigned to "Group of Companies FSK" LLC 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 "Group of Companies FSK" LLC was published by ACRA for the first time on September 2, 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 data provided by "Group of Companies FSK" LLC, information from publicly available sources, and ACRA’s own databases. The credit rating is solicited, and "Group of Companies FSK" LLC participated in its assignment.
In assigning the credit rating, ACRA used only information, the quality and reliability of which were, in ACRA’s opinion, appropriate and sufficient to apply the methodologies.
ACRA provided no additional services to "Group of Companies FSK" LLC. No conflicts of interest were discovered in the course of credit rating assignment.
