The credit rating of J-S.C. "PIONEER GROUP" (hereinafter, Pioneer, or the Company, or the Group) is based on the strong assessment of operational risk profile, very low leverage, very high profitability and coverage indicators, and strong assessments of liquidity and cash flow. The rating is under pressure from the very high industry risk and the medium assessments of the Company’s market position and business size.
Pioneer has operated in the real estate market since 2001, and today it is a leading developer in Moscow and Saint Petersburg. The Company is focused on the construction of comfort, business and premium class residential buildings, as well as commercial real estate properties. As of September 30, 2022, the total floor area of projects at construction and design stages in the Company’s portfolio was 547,000 m2 and 1.386 mln m2, respectively.
KEY RATING ASSESSMENT FACTORS
The 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 developers that have defaulted in the last five years. The industry the Company belongs to is a very strong factor limiting the credit rating.
Forecasted performance in 2022. This year, the Agency expects a decrease in the Company's revenue by about 20% compared to 2021 due to a reduction in the portfolio of ongoing construction, postponement of some new projects, and a significant decrease in sales in Q2 2022 against the background of the overall negative market situation. At the same time, ACRA notes that in Q3 2022, the Group's sales in monetary terms almost recovered to the level of Q1 2022. During the nine months of 2022, sale prices for the Company's residential real estate consistently grew, so that the average sale price in Q3 2022 went up by more than 30% compared Q4 2021. The price increase was driven by both general market dynamics and an increase in the share of premium projects in the Group's sales structure.
In 2021 and 2022, the Company expanded its land bank significantly, which will allow it to increase its portfolio of ongoing construction to more than 1 mln m2 by the end of 2023 and materially increase sales and revenue in 2023–2025.
Very low leverage and very high coverage indicators. When calculating the ratio of net debt to FFO before interest and taxes, ACRA adjusted the total debt raised for projects backed by escrow accounts by the amount of funds accumulated in escrow accounts. The weighted average (for 2020–2025) ratio of adjusted net debt to FFO before net interest is estimated by the Agency at 0.6x. The ratio of adjusted total debt to capital for the above period should amount to 0.5x, according to ACRA's estimates. The weighted average ratio of FFO before net interest to net interest for 2020–2025 is estimated by ACRA at 10.3x.
The strong assessment of the Company's liquidity reflects a positive free cash flow expected in 2022–2025 (taking into account adjustments for expenses under projects backed by escrow accounts), a comfortable debt repayment schedule, and the ability to borrow from external sources.
KEY ASSUMPTIONS
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Implementing the construction and sales plans.
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ACRA took into account only projects under construction and projects expected to be commissioned in accordance with the current financial plan of the Company.
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No significant price fall in the primary real estate market of Moscow 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:
- Stronger market positions of the Company and a concurrent growth in the current construction project portfolio above 2 mln m2 and the weighted average FFO before net interest and taxes exceeding RUB 30 bln.
A negative rating action may be prompted by:
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The weighted average ratio of FFO before net interest to net interest falling below 8x;
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The average weighted ratio of adjusted net debt to FFO before net interest exceeding 1x;
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Prices in the residential real estate market of Moscow declining by over 15% in 2023–2025;
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Regulatory changes that may impair the Company’s financial metrics.
RATING COMPONENTS
Standalone Creditworthiness Assessment (SCA): a-.
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 J-S.C. "PIONEER GROUP" was published by ACRA for the first time on November 25, 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 the data provided by J-S.C. "PIONEER GROUP", information from publicly available sources, as well as ACRA’s own databases. The credit rating is solicited, and J-S.C. "PIONEER GROUP" 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 J-S.C. "PIONEER GROUP". No conflicts of interest were identified in the course of credit rating assignment.
