The credit rating of JSC "GK "EKS" (hereinafter, the Company, or EKS) is based on the strong operational risk profile, strong assessments of liquidity and cash flow, low leverage, as well as average assessments of coverage and business size. The Company’s rating is constrained by high industry risks, small size, and low profitability. ACRA classifies infrastructure construction as a high-risk industry, which puts considerable pressure on the rating of EKS. At the same time, in the Agency’s opinion, the Company operates in the least risky segment of the industry and the low risks of non-payment under government contracts contribute to a partial reduction in the industry risk.
EKS acts as a general contractor in the implementation of construction and restoration projects. As of the end of 2021, EKS ranked sixth among the largest companies in the segment of construction of social, utility and road infrastructure in Russia.
KEY ASSESSMENT FACTORS
The strong operational risk profile assessment is based on a medium assessment of market position, the Company’s strong business profile, as well as an adequate level of corporate governance. The Company operates in 44 Russian regions. EKS carries out projects to design and construct educational and sports clusters, medical centers, and sewerage treatment facilities, to upgrade transport infrastructure, reconstruct and re-equip gas sector facilities, reclaim solid waste landfills, create and develop facilities for the improvement of urban areas, as well as restore cultural heritage monuments. The Company holds a number of licenses that allow it to participate in the implementation of various projects, including a license from the Federal Security Service of Russia to carry out work related to using state secrets; a license from the Russian Ministry of Culture for carrying out activities to preserve cultural heritage objects (historical and cultural monuments) of the peoples of the Russian Federation; and a license from the Russian Ministry for Civil Defense, Emergencies and Elimination of Consequences of Natural Disasters to install, maintain and repair fire safety equipment for buildings and structures. The volume of the contract portfolio of EKS amounts to over two years’ worth of the Company’s annual revenues. The fleet of EKS exceeds 400 units of construction and special equipment. The average share of subcontracted work in the Company’s revenues is about 35–40%.
Low leverage and medium coverage. At the end of 2021, the Company’s net debt was RUB 1.4 bln (against RUB 5.6 bln of the total debt). Due to the seasonality of payments under government contracts, the Company’s leverage usually increases at the beginning of year and decreases by the end of year. The weighted average ratio of total debt to FFO before net interest for the period from 2020 to 2025 is estimated by the Agency at 2.1x; according to ACRA’s estimates, the weighted average ratio of total debt to capital for the specified period will be about 0.9x. The weighted average ratio of FFO before net interest to interest for the period from 2020 to 2025 is estimated by ACRA at 3x.
Strong liquidity and cash flow. The weighted average FCF margin for the period from 2020 to 2025 is estimated by the Agency at 3.2%. ACRA does not expect the Company to pay dividends in 2022–2025. The strong assessment of liquidity is determined by a positive cash flow in 2023–2025, as well as a sufficient amount of undrawn credit lines and free cash on the Company’s accounts. At the same time, the Agency notes that the peak of the Company’s debt repayments is scheduled for 2023.
key assumptions
-
Completing projects as planned.
-
Revenues increasing by 8% in 2022 and 4% in 2023–2025.
-
The FFO before net interest and tax margin at 5% in 2022–2025.
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:
-
Weighted average ratio of FFO before net interest to interest exceeding 5x;
-
Weighted average return on FFO before net interest and taxes exceeding 8% and weighted average FFO before net interest and taxes exceeding RUB 5 bln.
A negative rating action may be prompted by:
-
Weighted average ratio of FFO before net interest to interest declining below 2.5х;
-
Regulatory changes that may impair the Company’s financials.
RATING COMPONENTS
Standalone creditworthiness assessment (SCA): bbb.
Adjustments: none.
issue ratings
There are no outstanding issues.
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 JSC "GK "EKS" was published by ACRA for the first time on December 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 JSC "GK "EKS", information from publicly available sources, and ACRA’s own databases. The credit rating is solicited, and JSC "GK "EKS" 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 JSC "GK "EKS". No conflicts of interest were discovered in the course of credit rating assignment.
