Press Releases / 21.02.2013
Press Release as of 21.02.2013
AK&M Rating Agency confirmed the ‘A’ credit rating (stable outlook) assigned to issue 4-01-20468-P of inconvertible interest-bearing documentary bearer bonds of CJSC Volga-Sport as per the national scale.
The ‘A’ rating indicates a high credit standing of bond issue 4-01-20468-P. Risk of a delay in meeting liabilities is relatively low, restructuring risk for a loan / part of a loan is minimal.
The bonded loan of series 4-01-20468-P in the amount of RUB 1,400 million, with a tenor of 11 years was placed completely on April 4, 2011. Proceeds were used to implement the social infrastructural project of financing, construction, equipment installation and operation of sports and recreation centers in Nizhny Novgorod region pursuant to the regional target program “Development of the social and engineering infrastructure to improve living standards in Nizhny Novgorod region in 2009-2011”. Operation of the sport and recreation centers and inflow of rental payments to CJSC Volga-Sport started in Q4 2011.
The credit rating of the Company’s bonded loan 4-01-20468-P is supported by the indirect participation of the Government of Nizhny Novgorod region in financing of the project, the guarantees of the project’s financial result provided by Nizhny Novgorod region, the low risks of CJSC Volga-Sport related to the operation of sports facilities and the Company’s good financial result of operation of the sports facilities constructed pursuant to the project in Nizhny Novgorod region.
One of the parameters essentially supporting the rating is that Nizhny Novgorod region has provided guarantees of a sufficient financial result for the project of construction and operation of sports facilities. Under the agreements between CJSC Volga-Sport and the Government of Nizhny Novgorod region, concessionary agreements may be terminated should the concessionary fail to meet the targets set forth in the financial model, an integral part of concessionary agreements. In this case, the Government of Nizhny Novgorod region will reimburse the issuer for all its project-related expenses. Therefore, even contingencies in the project and its implementation including lower cash flows will not prevent the Company from meeting its bonded loan obligations.
Another positive signal for the rating of the bonded loan is the low level of risks related to the operation of sports facilities for CJSC Volga-Sport following from concessionary agreements, other contracts and the Company’s risk management policy pursuant to the project. Once the sports facility is constructed and put into operation, it is the tenants who assume the basic operation risks.
The impressive financial result achieved by CJSC Volga-Sport when operating the already constructed sports facilities in Nizhny Novgorod region is a powerful contributor to the rating. The Company’s 2011 and 2012 reports indicate that its profits easily surpassed the targets. This proves that the sports facilities construction and operation business of CJSC Volga-Sport is fairly profitable and promising.
At the same time, the dependence of the project's financial result on the state of the regional budget, the absence of a fixed cost of loan servicing and the long-term forecasting risks with respect to the operation of the sports facilities are exerting pressure on the rating of bonded loan 4-01-20468-P of CJSC Volga-Sport.
Nizhny Novgorod region has assumed financing rental payments for the use of the sports facilities, which makes the project’s financial performance dependent on the state of the regional budget of Nizhny Novgorod region, which to a certain extent restricts the rating score.
Another risk factor is an element of uncertainty as to the cost of loan servicing. The first coupon rate on the bonded loan is 9.75% per annum; for other coupon periods, yield rates will be calculated as the annualized consumer price index as of May in the year preceding the year of respective coupon payment, plus 2.5%. Therefore, the coupon rate on the securities issued will largely depend on the inflation rate on a long-term horizon. The Company intends to offset the cost of servicing risk with sports complex rent adjustments as necessary.
Besides, the long terms of concessionary agreements imply risks of imperfect long-term forecasts due to challenges of forecasting as such and possible unpredictable force-majeure circumstances.
CJSC Volga-Sport was specially established according to the Russian law to implement a social infrastructural project of construction and operation of sports and recreation centers in Lukoyanovsky, Pavlovsky and Krasnobakovsky districts of Nizhny Novgorod region. To raise funds for these projects, CJSC Volga-Sport placed bonded loan 4-01-20468-P. Today, the sports and recreation centers are already constructed and in successful operation. Assets of CJSC Volga-Sport as of the end of the third quarter 2012 totaled RUB 2.4 billion.
Besides, CJSC Volga-Sport placed another bonded loan 4-02-20468-P on 10/31/2012 so as to raise funds for the construction and further operation of a sports complex in Ulyanovsk city. Implementation of this project employs a public private partnership scheme. A concessionary agreement specifying CJSC Volga-Sport as the concessionary and Ulyanovsk region as the concession provider was concluded for a period of 12 years. Completion of the construction and commissioning of the sports complex is scheduled for Q4 2013. The total cost of the project (VAT inclusive) is approximately RUB 1.9 billion. In 2012, AK&M Rating Agency rated bonded loan 4-02-20468-P issued by CJSC Volga-Sport ‘A’ with a stable outlook.
Therefore, CJSC Volga-Sport has issued two bond issues currently in circulation.
This press release is based on the statement of assigning a credit rating to bond issue 4-01-20468-P by CJSC Volga-Sport.
The credit rating, along with any information and conclusions provided in this press release, only conveys our opinion on the credit standing and shall not be considered as advice on the purchase and sale of securities or the provision of loan facilities.
CJSC AK&M Rating Agency will not incur any responsibility for any interpretations, inferences and consequences related to the application of results of the rating estimation procedure by any third parties.
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