The credit rating outlook of VIS Group (JSC) (hereinafter, VIS Group, or the Group) is based on its strong business profile and stable market position. The regional diversification of the Group’s business operations is assessed as good. The Group’s financial risk profile is characterized by low leverage and high profitability. In addition, the Group has a good liquidity and free cash flow (FCF) positions. The rating is constrained, as per ACRA’s methodology, by the Group’s medium size compared to the largest industry competitors, industry risks, and medium coverage of debt. According to ACRA’s classification, the infrastructure construction industry, in which the Group implements public-private partnership (PPP) projects, is highly risky, which puts significant pressure on the rating. At the same time, according to the Agency, road construction is the least risky segment of the industry. The level of industry risk is partially reduced by the fact the Group’s portfolio is almost entirely made up of PPP projects, where risks associated with infrastructure construction are limited by the terms of PPP agreements.
VIS Group is an investment infrastructure holding. The Group has commissioned more than 100 infrastructure facilities in Russia and Europe and currently has one of the country’s largest portfolio of concessions and PPP projects. They include large and significant projects such as the construction and operation of the Khabarovsk Bypass highway, a high-speed motorway in the Moscow Region, bridges over the river Ob in Novosibirsk, the river Lena near Yakutsk, and across Kaliningrad bay, as well as several major social infrastructure objects in different regions.
KEY ASSESSMENT FACTORS
Strong business profile and good geographic diversification. VIS Group is focused on PPP projects, including concessions, and the implementation within their framework of a full range of work from preliminary preparation of projects and financial closure to the commissioning of facilities and their commercial and technical operation. The majority of projects in the Group’s portfolio belong to transport infrastructure (roads and bridges). Others include public facilities (schools, day care centers, hospitals, and cultural facilities such as the State Philharmonic Hall and Arctic Epic and Arts Center in Yakutsk). The Group’s construction division has experience in the construction of major facilities of different profile (power units for power plants, railway and river terminals, day care centers, and sports centers), as well as transport infrastructure. In 2022, the Khabarovsk Bypass highway, the Group’s first major road construction project, was put into operation. The Group’s construction division has secured a portfolio of contracts for more than three years. The current backlog is RUB 571 bln. Public parties in the Group’s PPP projects include Russian regions with high credit quality; ACRA notes that there is no concentration on any major customers. The share of subcontracted work in the Company’s costs has grown since 2023, which is due to the implementation of major investment projects.
The geography of VIS Group’s presence is extensive and covers the Republic of Sakha (Yakutia), the Moscow Region, Novosibirsk Region, Khabarovsk Krai, Zabaikalsky Krai, Kaliningrad Region, Khanty-Mansi Autonomous Okrug – Yugra, and the Yamalo-Nenets Autonomous Okrug.
Corporate governance. The Group’s strategy is conservative and provides for the implementation of large and profitable projects in solvent regions. The Group is actively developing PPP projects, including concessions. The ultimate beneficiary is directly involved in managing the Group. Exposure to foreign exchange and interest rate risks is low. VIS Group includes a large number of legal entities, but this is due to the operational needs and the specifics of business, including PPP projects. The Group prepares and publishes IFRS financial statements, whose quality, in ACRA’s opinion, is acceptable, and holds conference calls and presentations for investors and analysts.
Low leverage and medium coverage. In its leverage estimations, ACRA relies on the indicators of adjusted debt, which excludes liabilities under concession and PPP agreements. This is because, according to the terms of the Group’s concession and PPP agreements, senior (bank) debt and junior debt (concessionaire’s/private partner’s contribution) are subject to full compensation in the event of early termination of concession and PPP agreements. Given the Group’s active use of operating lease and for the sake of comparability of credit ratings under different asset ownership models, ACRA applies leverage and coverage metrics that take into account operating lease expenses, namely, the ratio of total debt adjusted for operating lease to FFO before fixed payments (interest payments and operating lease expenses) and the ratio of FFO before fixed payments to fixed payments.
As of the end of 2023, the ratio of adjusted total debt to FFO before fixed payments was 0.6x. According to ACRA’s estimates, this ratio is expected to remain almost unchanged in 2024–2026.
As of April 30, 2024, the Group’s corporate liabilities included bonds, bank loans, loans from associates, and leasing obligations, with bonds accounting for most of the debt portfolio. Almost all of the Group’s debt is denominated in rubles and has been provided under fixed rates.
The ratio of FFO before fixed payments to fixed payments was 6.4x at the end of 2023.
Strong industry positions and high profitability. The Group’s FFO before net interest payments and taxes amounted to RUB 11.3 bln in 2023. According to ACRA’s projections for 2024–2026, the weighted average of this indicator will be around RUB 14 bln. This trend is explained by revenues under large-scale concession projects. The total volume of construction, installation and design work to be performed in the Group’s project portfolio is RUB 380 bln, which corresponds to a good assessment score for this factor. ACRA expects the Group’s FFO margin before interest payments and taxes to remain unchanged in 2024–2026. This is due to the implementation of major transport infrastructure PPP projects, including the operation stage of Khabarovsk Bypass Highway, investment stage of Vinogradovo-Boltino-Tarasovka motor road and bridges over the Lena, the Ob, and Kaliningrad Bay.
Good liquidity and FCF. Taking into account the cash balances in the Group’s accounts and deposits, ACRA expects the Group’s short-term liquidity ratio to exceed 1.5x by the end of 2024. The quality assessment of liquidity is high — the Group raises funds mostly from the top five banks and in the debt market. The Group placed its debut issue of digital financial assets in 2024. ACRA expects the Group’s weighted average FCF to be positive in 2024–2026.
KEY ASSUMPTIONS
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Implementation of all current PPP and concession agreements in full and according to deadlines;
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Annual growth in production costs not exceeding revenue growth;
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The Group’s dividend expenses in line with declared terms and volumes;
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Obligations under PPP projects, including concessions, to be fulfilled on time and in full by all parties.
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 FFO before net interest payments and taxes exceeding RUB 30 bln;
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Weighted ratio of FFO before fixed payments to fixed payments maintained at above 5x coupled with maintaining the weighted ratio of adjusted total debt to FFO before fixed payments below 1x.
A negative rating action may be prompted by:
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FFO before net interest payments and taxes falling below RUB 5 bln and FFO margin before net interest payments and taxes declining below 8%;
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Ratio of adjusted total debt to FFO before fixed payments exceeding 1x and ratio of FFO before fixed payments to fixed payments declining below 2.5x;
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Exclusion from PPP contracts, including concession agreements, of the provision on full compensation of senior and junior debt in case of early termination;
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All parties fail to fulfill, on time and in full, their obligations under PPP agreements, including concessions;
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Significant deterioration in access to external sources of liquidity.
RATING COMPONENTS
Standalone creditworthiness assessment (SCA): a.
Adjustments: none.
ISSUE RATINGS
Bonds of LLC VIS FINANCE, series BO-P01 (RU000A102952), maturity date: October 12, 2027, put option date: October 20, 2023, issue volume: RUB 2.5 bln — A(RU).
Rationale. According to ACRA’s methodology, the issue represents senior unsecured debt of LLC VIS FINANCE, which is secured by a joint guarantee from VIS Group. Due to the absence of any guarantees from the key operating companies of VIS Group, ACRA applied the detailed approach to estimate the recovery rate. In accordance with this approach and the Agency’s methodology, the recovery rate for the issue belongs to category I, therefore the credit rating of the issue is equal to the credit rating of the guarantor, i.e. A(RU).
REGULATORY DISCLOSURE
The credit ratings of VIS Group (JSC) and the bond issue of LLC VIS FINANCE (RU000A102952) were 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 the credit rating to the above issue.
The credit rating of VIS Group (JSC) and the bond issue of LLC VIS FINANCE (RU000A102952) were published by ACRA for the first time on August 21, 2020 and October 20, 2020, respectively. The credit rating of VIS Group (JSC) and its outlook and the credit rating of the bond issue of LLC VIS FINANCE (RU000A102952) 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 VIS Group (JSC), information from publicly available sources, and ACRA’s own databases. The credit ratings are solicited and VIS Group (JSC) 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 LLC VIS FINANCE. ACRA provided additional services to VIS Group (JSC). No conflicts of interest were discovered in the course of credit rating assignment.
