Press Releases / 29.01.2015
Press Release as of 29.01.2015
AK&M Rating Agency affirmed the national scale credit rating assigned to issue 4-02-20468-P of inconvertible interest-bearing documentary bearer bonds of Volga – Sport, CJSC at 'A', tier 1. The outlook is stable.
The 'A' rating indicates a high credit worthiness of bond issue 4-02-20468-P. The risk of a failure to meet obligations in time is low, the full or partial debt restructuring risk is minimal.
The bonded loan of series 4-01-20468-P (ISIN: RU000A0JRJC6) in the amount of RUB 1.4 billion with a tenor of 4,018 days was meant to be the key funding source for the project of construction and subsequent operation of the sports and health recreation centers in Lukoyanovsky, Pavlovsky and Krasnobakovsky districts of Russia's Nizhny Novgorod region (hereinafter referred to as the 'Nizhny Novgorod project'). Implementation of this project employs a public private partnership scheme. A concessionary agreement specifying Volga – Sport, CJSC as the concessionary and Nizhny Novgorod region as the concession provider was concluded for a period of 12 years. The construction project was completed and commissioned in the fourth quarter of 2011. The total cost of the project (VAT inclusive) is approximately RUB 1.4 billion. Volga – Sport, CJSC is the principal investor in the project and the issuer of bonded loan 4-01-20468-P. The long-term debt liabilities on the Nizhny Novgorod project reached a peak at the end of the third quarter of 2011.
Volga – Sport, CJSC is an investment company established under the Russian legislation to implement construction and operation projects for sports and health recreation centers and other sports facilities in the Russian Federation.
Along with the sports facilities construction and operation project in Nizhny Novgorod region, Volga – Sport, CJSC is implementing the Volga-Sport-Arena ice palace construction and operation project in Ulyanovsk.
Volga – Sport, CJSC is a subsidiary company of CJSC Investment Company Leader.
We regard the company's diligence in meeting the obligations to service the bonded loan of series 4-01-20468-P, the regional government's commitment to the financing of the concession facilities' operation, the obligation of Nizhny Novgorod region to ensure the required financial performance, the low risks of Volga – Sport, CJSC related to the operation of sports facilities, the flexible bonded loan repayment terms, the fairly high creditworthiness of the bonded loan issuer and the positive cash flows from the current operation of the sports facilities sufficient to cover expenses for the servicing and repayment of obligations across the next 18 months as the positive rating drivers for the bonded loan of Volga – Sport, CJSC.
The diligence of Volga – Sport, CJSC in meeting its obligations to service bonded loan 4-01-20468-P is a strong positive argument for the credit rating of its debt instrument. Within the prescribed time limits, Volga – Sport, CJSC paid the first and second coupons on the loan to investors in 2013-2014 and bought back two bond tranches of series 4-01-20468-P for a total amount of RUB 280 million.
The government of Nizhny Novgorod region's commitment to financing the operation of concession facilities also contributes significantly to the credit rating of Volga – Sport's bonded loan 4-01-20468-P. Of particular value is the obligation of Nizhny Novgorod region to ensure the required financial metrics of the sports facilities construction and operation project. As agreed between Volga – Sport, CJSC 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 which is an integral part of the concessionary agreements. In this case, the government of Nizhny Novgorod region will reimburse the issuer for all its project-related expenses. Therefore, even contingencies related to 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 bonded loan rating is the low level of risks related to the operation of sports facilities for Volga – Sport, CJSC following from the concessionary agreements, other contracts and the Company's risk management policy pursuant to the project.
We appreciate the flexible debt repayment mechanism for the bonded loan. Of particular importance is that the borrower has an early repayment option, although the loan only must be repaid at maturity – which provides Volga – Sport with greater financial headroom to meet obligations arising from the bonded loan, thereby reducing default risks and contributing to the current credit rating of the loan.
The fairly high creditworthiness of Volga – Sport, CJSC proven by the loan issuer's currently robust financial position and the high financial performance (meeting the target levels) of all the sports facilities constructed also supports the credit rating of the bonded loan. Of special importance is the completion and commissioning of the Ulyanovsk-based Volga-Sport-Arena ice palace project in April 2014.
Besides, our financial analysis of the issuer shows that all the debt servicing and repayment expenses are properly covered by the Company's positive cash flows across the next 18 months. Projected debt coverage ratios (cash flows available for loan servicing purposes in relation to the corresponding principal debt servicing and repayment expenses) over the debt repayment period are always above 1. Therefore, the expected projected cash flows are sufficient to meet the obligations to service and repay the issuer's bonded loans including bonded loan 4-01-20468-P.
At the same time, the dependence of the project's financial viability on the state of the regional budget and the lack of certainty as to the coupon policy applying to the bonded loan are putting pressure on the rating of Volga – Sport CJSC's bonded loan 4-01-20468-P.
Given that the source of Volga – Sport's income from the operation of the sports and recreation facilities is the funds earmarked in the budget of Nizhny Novgorod region, the project's financial viability is somewhat dependent on the state of the regional budget. This, in a certain way, constrains the bonded loan rating.
Another risk factor is an element of uncertainty as to the cost of loan servicing. The first coupon rate on the bonded loan was 9.75% per annum; for other coupon periods, yield rates will be calculated as the annualized consumer price index reported in due order by the authorized executive federal authority as of May in the year preceding the year of respective coupon payment (May over May), plus 2.75%. Therefore, the coupon rate on the securities issued will largely depend on the headline inflation rate on a long-term horizon.
Volga – Sport, CJSC is a business entity established in accordance with the Russian legislation. Its initial objective was to implement a social infrastructure development project (construction and operation of sports and recreation centers in Lukoyanovsky, Pavlovsky and Krasnobakovsky districts of Russia's Nizhny Novgorod region. To mobilize capital required for the Nizhny Novgorod projects, the Company placed the rated bonded loan 4-01-20468-P. The projected sports and recreation centers are successfully constructed and being operated.
Besides, Volga – Sport, CJSC is responsible for the construction and operation of a sports center in Ulyanovsk. To raise funding for that project, the Company placed bonded loan of series 4-02-20468-P. In 2014, AK&M Rating Agency rated bonded loan of series 4-02-20468-P 'A', tier 1, with a stable outlook.
Therefore, Volga – Sport, CJSC has to date issued two bond issues currently in circulation.
As of the start of Q4 2014, assets of Volga – Sport, CJSC almost reached RUB 3.4 billion, revenue for 9 months of 2014 totaled RUB 510.1 million, net profit was RUB 62.8 million.
Official Company name: "Volga – Sport", CJSC.
This press release is based on the Statement of assignment of a credit rating to bonded loan 4-01-20468-P issued by Volga – Sport, CJSC.
The credit rating, along with any information and conclusions provided in this press release, only conveys our creditworthiness opinion 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 accredited by the Ministry of Finance of the Russian Federation (order no. 452 as of September 17, 2010).
CJSC Analysis, Consulting and Marketing 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
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