The credit rating of Okhta Group LLC (hereinafter, the Company, or Okhta Group) is based on its very high business profitability, low leverage and strong liquidity, along with high geographic diversification due to the Company’s presence in Saint Petersburg. However, the rating is constrained by the very high risk of the residential construction industry, small size of business, low assessments of market position, business profile and corporate governance, as well as a medium assessment of coverage.
Okhta Group is a residential and commercial real estate developer with a focus on Saint Petersburg. The Company is also carrying out a number of projects in Petrozavodsk. Okhta Group specializes in high-margin residential projects in all segments — from comfort class to elite low-rise housing complexes — and also redevelops industrial sites in order to construct commercial and office buildings and apartments. According to the Company, its current construction portfolio amounted to 393,000 sq. m of total floor space as of August 2022.
key assessment factors
Industry risk is assessed as very high due to the pronounced cyclical nature of the construction industry, high amount of overdue debt, and the substantial number of companies that have defaulted over the last five years. The industry the Company belongs to is a very strong factor limiting its credit rating.
Weak assessments of market position, business profile, and corporate governance. The high share of the Company’s expected sales in 2022–2024 stem from a single project. At the same time, ACRA notes that project diversification has improved compared to last year’s assessment and expects diversification to continue growing. Okhta Group operates as a classic developer that mainly performs managerial functions, due to this, the factor of the Company’s dependence on materials and subcontracting is estimated at a very low level. At the same time, the business profile assessment is supported by the high assessment of conditions for implementation of the Company’s projects and their deadlines. A significant part of the Company’s projects is carried out with co-investors, with Okhta Group holding minority stakes in projects and acting as a managing partner. This approach broadens the Company’s investment opportunities and allows it to increase both the number of projects and income generated by them from management fees, but complicates the analysis of the Company’s financial statements and structure.
Low leverage and medium coverage assessments. In its calculation of the ratio of net debt to FFO before interest and taxes, ACRA adjusted total debt by the amount raised as part of escrow-backed project finance and fully secured by buyers’ funds held in escrow accounts. The Agency estimates the weighted average ratio of adjusted net debt to FFO before net interest payments for 2019–2024 at 2x. The Agency estimates the weighted average ratio of FFO before net interest payments to net interest payments for 2019–2024 at 3.3x.
The strong liquidity assessment reflects a sufficient amount of free cash in the Company’s accounts and insignificant repayments of corporate debt due in 2022–2024.
key assessments
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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 planned in accordance with the Company’s financial plan;
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No substantial decline in real estate prices in the primary market of Saint Petersburg in 2023–2024.
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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Weighted average ratio of adjusted net debt to FFO before net interest payments falling below 1.0х and weighted average ratio of FFO before net interest payments to net interest payments growing above 5.0х;
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Improved diversification of the project portfolio and stronger market positions.
A negative rating action may be prompted by:
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Weighted average ratio of FFO before net interest payments to net interest payments declining below 2.5х and weighted average ratio of adjusted net debt to FFO before net interest payments exceeding 2.0х;
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Prices in the primary real estate market of Saint Petersburg declining by more than 15% in 2022–2023;
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Regulatory changes that entail potential material adverse effects on the Company’s performance.
rating components
Standalone creditworthiness assessment (SCA): bb.
Adjustments: none.
issue ratings
No outstanding issues have been rated.
regulatory disclosure
The credit rating has been assigned to Okhta Group 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 Okhta Group LLC was published by ACRA for the first time on September 17, 2021. 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 Okhta Group LLC, information from publicly available sources, and ACRA’s own databases. The credit rating is solicited, and Okhta Group 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 Okhta Group LLC. No conflicts of interest were discovered in the course of credit rating assignment.
