Press Releases / 24.11.2014
Press Release as of 24.11.2014
CJSC Wastes Management
CJSC AK&M Rating Agency upgraded the national scale credit rating of CJSC Upravlenie otkhodami to 'A+', with a stable outlook.
The 'A+' rating indicates that CJSC Upravlenie otkhodami qualifies as a highly creditworthy borrower. The risk of a failure to meet obligations in time is insignificant.
The Company's core business is implementing public private partnership-based (PPP) long-term projects to create and operate solid domestic waste treatment facilities under concessionary agreements.
The mainstay of CJSC Upravlenie otkhodami's high credit rating is the availability of guarantees from the regions enshrined in concessionary agreements. The agreements provide for the complete reimbursement of the Company's investment and operating costs including financial expenses. Under the agreements, the waste treatment and disposal tariff is based on the Company's expenses, adjusted for a standard profit derivative of the amount of expenses, which ensures the profitability of the Company's operations.
The project is financed with bonded loans (infrastructural bonds). In particular, CJSC Upravlenie otkhodami issued bonded loan issue 01 in the amount of RUB 2,800,000 with a face value of RUB 1,000 in 2013 to implement one of its most ambitious projects in Saratov region. The bond issue 01 prospectus does not provide for advanced repayment. The principal is only repayable at maturity of the bonds. To finance the Company's project in the Chuvash Republic, the company intends to place bonded loan 02 for a total amount of RUB 1 billion (1,000 thousand bonds with a face value of RUB 1,000) in the fourth quarter of 2014, fully maturing in the second quarter of 2025. Bonded loan 02 incorporates an early bond retirement schedule, the principal debt is repayable in equal installments over the period from 2019 to 2025 starting from coupon 4. During that period, the company is expected to be able to repay the debt with the cash flow from its operations.
The debt servicing and repayment expenses are properly covered by the Company's positive cash flows. Projected debt coverage ratios (cash flows available for loan servicing purposes in relation to the corresponding principal debt servicing and repayment expenses) after the launch of the waste treatment & disposal facilities are normally above 1. Therefore, the expected projected cash flows in terms of the project financial model are sufficient to meet the bonded loan servicing and repayment obligations. The total amount of coupon payments is almost RUB 3.9 billion. The coupon yield will peak in 2015 and 2016 (RUB 339 million and RUB 573 million, respectively).
Another positive rating driver is the low risk incidental to the construction and operation of the facilities, given their relative structural simplicity and highly proven techniques of their operation.
The rating upgrade reflects improvements in the performance of the Company's subsidiary CJSC Upravlenie otkhodami – Nizhny Novgorod. According to UONN's 9-month fiscal accounting statement, its revenue increased almost twice to RUB 104 million Operating loss for the same period dropped 20 times to RUB 1.5 million. UONN owes its higher financial performance to the commissioning of a facility in Balakhna (Nizhny Novgorod region) and an increase in capacity utilization in Gorodets.
Another reason for the positive rating action is that some of the facilities in the Company's ambitious project in Saratov region are at an advanced stage. According to current situation reports, the "Engels cluster" facility is to be put into operation in the 1st quarter of 2015. The adjustment of the cost of property created by CJSC Upravlenie otkhodami to be transferred to the concession provider as well as the tariff calculation are near completion. In this connection, the expectations of substantially stronger operational and financial performance metrics in 2015 may be regarded as well grounded.
The credit rating of CJSC Upravlenie otkhodami is mainly constrained by the inherent macroeconomic parameters of the financial model and administrative matters influencing, among others, the key tariff approval and annual revision process.
The high amount borrowed for financing the initial investment stage of the projects is working against the Company's rating. The heavy coupon payments in 2015-2016 may pose a risk if coupled with underutilization of capacities at most of the projects. The company may use borrowed funds to repay these obligations.
The risk of lower-than-projected incomes due to the poor collectability of utility payments also impairs the Company's rating. Long-term forecasts of utility payment collectability trends in regions always have an element of uncertainty.
This press release is based on the Statement of assignment of a credit rating to CJSC Upravlenie otkhodami. The rating, along with any information and conclusions provided in this press release, only conveys our opinion on the Company's creditworthiness and shall not be construed as a recommendation to purchase or sell securities, or to lend funds.
AK&M Rating Agency shall not be held liable for any interpretations, inferences and consequences related to the application of results of the rating estimation procedure by any third parties.
AK&M Rating Agency is a leading independent national rating agency engaged in rating activities since 1993. CJSC AK&M Rating Agency is accredited by the Ministry of Finance of the Russian Federation (order no. 452 as of September 17, 2010) and is on the Central Bank of Russia's Register of Accredited Rating Agencies.
CJSC Analysis, Consulting and Marketing Rating Agency
Ul. Gubkina 3, Moscow, Russia
Phone no. (495) 916-70-30, fax no.: (499) 132-69-18.