The credit rating of "GROUP OF COMPANIES FSK" LLC (hereinafter, the Company, or FSK) is still based on its strong market position, very strong business profile and geographic diversification assessments, high profitability, strong liquidity, and medium cash flow assessment. In ACRA’s opinion, the Company is characterized by low leverage and very high debt coverage metrics. At the same time, the Company’s rating is constrained by very high industry risk, as well as low scores for 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 July 1, 2023 and fourth in terms of housing sales in Moscow and the Moscow Region in 2022. According to the Company’s estimates, its share in the total sales in the Moscow area grew to 5.5% in 2022 against 4.7% a year earlier.
key assessment factors
Industry risk is assessed as very high as the Company belongs to the housing construction sector, which is a very strong factor that limits its credit rating. ACRA believes that the prolongation of the government-supported mortgage program until July 1, 2024, expansion of the terms of the family mortgage program, and continuance of jointly subsidized programs will allow avoiding a drop in the housing market demand in the conditions of the persisting geopolitical and macroeconomic uncertainty. At the same time, suspension of new projects may not fully smooth the current excessive offer in the primary housing market, which leads to price stagnation or even decline.
Results for 2022 and expectations for 2023. In 2022, the Company’s sales dropped by 17% to 420,000 sq. m against 504,100 sq. m in 2021, and this decline turned out to be better than the market. At the same time, average sale prices demonstrated a moderate growth, having grown by 10% against 2021. In the monetary terms, the Group’s sales grew by 24.1% (to RUB 153.3 bln) against 2021 due to the revenue recognizing specifics in IFRS reports. This year, the Company aims to increase the sales volume to 625,400 sq. m, which is associated with the transfer of the offered projects from the past year to the current year. Sales prices will decrease by about 4% against 2022, which is due to the general market trends.
Higher score for business size; high profitability. Higher revenues from real estate sales and the Group’s acquisition of certain flat glass manufacturers ensured a 24.1% increase in revenue in 2022. As a result, the Company’s FFO before net interest and taxes reached RUB 30 bln last year. ACRA believes that in the forecast period (2023–2025) this indicator will continue to grow due to both an increase in real estate sales, including thanks to a new subdivision, FSK Family, with its portfolio of suburban housing projects amounting to 1 mln sq. m, established by a partnership agreement and an increase in the volume of construction services. Therefore, the score for the Company’s business size has been upgraded to high. The weighted average (2020–2025) FFO before interest and taxes margin is estimated at 13.1%, which, as per the Agency’s methodology, indicates the high score.
Low leverage and very high debt coverage. 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 2022, the ratio of adjusted net debt to FFO before net interest taking into account shareholder debt was 1.77x; ACRA expects that the weighted average indicator for 2020–2025 will be 1.2x. The weighted average ratio of total debt to equity is 0.8x, which, along with the abovementioned ratio of net debt to FFO before net interest, shows that the Company’s leverage is low. The ratio of FFO before net interest to net interest was 10.5x in 2022, and the weighted average indicator for 2020–2025 is estimated by the Agency at 13.0x.
Medium score for cash flow; strong liquidity. In its calculations of free cash flow (FCF), the Agency adjusts funds from operations for variations in the project debt under escrow accounts, and includes dividend payments into FCF. ACRA estimates the weighted average FCF margin for 2020–2025 at 2.2%. The Company’s strong liquidity assessment is based on the sufficient volume of cash in its accounts and undrawn credit lines, positive FCF expected in 2024–2025, and the Company’s access to external sources of liquidity.
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.
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Average dividend payments in the forecast period of 2023–2025 at the level of the past years.
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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Better group structure and financial transparency assessments;
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The Company’s portfolio of current projects reaching 2 mln sq. m, along with the weighted average ratio of adjusted net debt to FFO before net interest declining below 1x, and the weighted average ratio of total debt to equity declining below 0.5x.
A negative rating action may be prompted by:
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The weighted average FCF margin declining below 0%;
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The weighted average FFO before net interest and taxes margin falling below 12% and the weighted average ratio of adjusted net debt to FFO before net interest 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.
