The credit rating of “Brusnika. Stroitelstvo i development” LLC (hereinafter, Brusnika or the Company) is based on its very strong business profile and geographic diversification, very high profitability, low leverage, very high coverage, and strong liquidity. The rating continues to be constrained by the medium assessments of market position, company size, and cash flow. The credit rating outlook has been changed due from Negative to Stable due to the Company’s positive performance in 2023 and expected further improvement of leverage metrics in 2024–2026.
Founded in 2004, Brusnika is a developer company focusing on high-quality housing and integrated development of urban areas. The Company is headquartered in Yekaterinburg. The Company’s project portfolio is diversified among eight large cities of the Ural region, Siberia, and the Moscow area. According to the Company, the volume of commissioned residential real estate was 294,000 sq. m in 2023. As of the beginning of February 2024, Brusnika ranked 10th in terms of its current construction portfolio according to the Unified Resource of Developers.
key assessment factors
Industry risk is assessed as very high due to the pronounced cyclical nature of the industry, high amount of overdue payments, and substantial number of developers that have defaulted over the last five years. Therefore, industry risk is a strong factor that limits the Company’s rating.
Brusnika’s performance in 2023 shows that the Company fulfilled its sales targets. Registration of new contracts between buyers and the Company amounted to 472,000 sq. m in physical terms last year, having grown by 108%. The size of registered contracts increased by 2.4 times, while the average sales price increased by 14%. Furthermore, the Agency expects revenues recognized by construction readiness under IFRS reporting to grow by around 55–60% year-on-year.
The very strong business profile reflects the very high diversification of the project portfolio, as well as the very high assessment of project terms and deadlines. In 2023, Brusnika began building its first property in Moscow and opened sales for it. In the near future, the Company also plans to start carrying out other projects in the Moscow Region and within the boundaries of old Moscow, a market that the Agency considers to be the most spacious, stable and profitable. The Dependence on Materials and Subcontracting sub-factor is supported by the presence of production facilities for the manufacture of prefabricated structural elements, which reduces construction time. Brusnika tops the ranking of the Unified Register of Developers in terms of consumer characteristics of residential projects and was the first developer in Russia to successfully pass BREEAM certification and obtain an Excellent rating in the residential category, and is recognized as an innovative and proactive developer.
Brusnika effectively manages its construction deadlines and costs due to well-organized general contractor and engineering oversight and design procedures within the Company, digitalization of business processes, as well as investment in R&D and growth of productivity. In addition, Brusnika benefits from developed and diversified sales channels, as well as its fast-expanding online sales platform.
The high level of corporate governance reflects the success of the strategy, which is expressed both in terms of growth in the Company’s operational indicators and its market share in regions of presence, as well as in the constantly improving quality characteristics of commissioned objects and increasing brand awareness. The financial transparency score was improved to very high due to the publication of IFRS financial statements in the public domain, quarterly publication of operating results, and work with investors. The high score for the Management Structure sub-factor takes into account the presence of independent directors on the Company’s board of directors.
Medium assessment of the size of business and very high profitability. Weighted average FFO before net interest payments and taxes for 2021 to 2026 will be RUB 21.6 bln, which corresponds to a medium assessment of business size as per the Agency’s methodology. ACRA notes the control of cost and profitability of projects, as well as the optimization of overhead costs carried out by the Company, which reflects Brusnika’s high operational efficiency. The Company’s weighted average FFO margin before net interest payments and taxes from 2021 to 2026 is estimated by the Agency at 26.8%.
Low leverage and very high debt service ratio. When estimating leverage, ACRA adjusts total debt by the amount of project finance debt secured by buyers’ escrow accounts (but not exceeding project debt). The Agency expects that the active involvement of the previously formed land bank in turnover will help reduce the Company’s leverage in 2024 and beyond. The weighted average ratio of adjusted net debt to FFO before net interest payments for the period from 2021 to 2026 will be 2.6x according to ACRA’s calculations. At the same time, the Agency assesses the Company’s leverage as low due to its very high qualitative assessment, which, in turn, is due to a balanced debt structure, a comfortable repayment schedule and the highly diversified base of the Company’s creditors. When estimating the debt service ratio, ACRA includes interest payments on project debt in prime costs. The Agency assesses the weighted average ratio of FFO before net interest payments to net interest payments for 2021 to 2026 at 10.1x.
Very high liquidity and medium cash flow assessment. The strong liquidity assessment takes into account the fact that Brusnika has diversified sources of internal and external financing and a considerable volume of available undrawn limits at banks. To assess the free cash flow (FCF) margin of construction companies, the Agency adjusts FCF by the amount of expenses funded through project finance arrangements. Significant expenses on the replenishment of the land bank puts pressure on the weighted average adjusted profitability of the Company’s FCF. At the same time, ACRA expects Brusnika’s adjusted FCF to be mainly positive in 2023–2026.
key assumptions
-
Adherence to construction and sales targets;
-
ACRA’s estimates only include projects being constructed and planned in accordance with the Company’s current financial plan;
-
No significant decline of prices in the primary real estate markets of the Company’s regions of presence in 2024–2026.
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 adjusted net debt to FFO before net interest payments declining sustainably below 1.0x;
-
Weighted FFO before net interest payments and taxes exceeding RUB 30 bln and the current construction portfolio exceeding 2 mln sq. m.
A negative rating action may be prompted by:
-
Weighted average ratio of adjusted net debt to FFO before net interest payments exceeding 3.5x coupled with the weighted average ratio of FFO before net interest payments to interest payments falling below 8.0x;
-
Residential real estate prices decreasing by more than 15% in the primary markets of the Company’s regions of presence in 2024–2026;
-
Regulatory changes capable of having a material adverse effect on the Company’s performance.
rating components
Standalone creditworthiness assessment (SCA): a-.
Adjustments: none.
issue ratings
“Brusnika. Stroitelstvo i development” LLC (ISIN RU000A1048A9), maturity date: June 10, 2025, issue volume: RUB 5.25 bln — A-(RU).
“Brusnika. Stroitelstvo i development” LLC (ISIN RU000A102Y58), maturity date: April 1, 2024, issue volume: RUB 6 bln — A-(RU).
Rationale. The issues represent senior unsecured debt of the Company. Due to the absence of either structural or contractual subordination of the issues, ACRA regards them as equal to other existing and future unsecured and unsubordinated debt obligations of the Company in terms of priority. According to ACRA’s methodology, the recovery rate for unsecured debt belongs to category I, therefore the credit ratings of the issues are equivalent to that of the Company, i.e. A-(RU).
regulatory disclosure
The credit ratings of “Brusnika. Stroitelstvo i development” LLC and the bond issues of “Brusnika. Stroitelstvo i development” LLC (ISIN RU000A1048A9, RU000A102Y58) have 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 Methodology for Assigning Credit Ratings to Financial Instruments under the National Scale for the Russian Federation was also applied to assign credit ratings to the above issues.
The credit ratings of “Brusnika. Stroitelstvo i development” LLC and the bond issues of “Brusnika. Stroitelstvo i development” LLC (ISIN RU000A1048A9, RU000A102Y58) were published by ACRA for the first time on December 14, 2021, April 5, 2021, and March 12, 2020, respectively. The credit rating of “Brusnika. Stroitelstvo i development” LLC and its outlook, as well as the credit ratings of the bond issues of “Brusnika. Stroitelstvo i development” LLC, are expected to be revised within one year following the publication date of this press release.
The credit ratings were assigned based on data provided by “Brusnika. Stroitelstvo i development” LLC, information from publicly available sources, and ACRA’s own databases. The credit ratings are solicited and “Brusnika. Stroitelstvo i development” LLC participated in their assignment.
In assigning the credit ratings, 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 “Brusnika. Stroitelstvo i development” LLC. No conflicts of interest were discovered in the course of credit rating assignment.
