Press Releases / 17.12.2015
Press Release as of 17.12.2015
CJSC Wastes Management
AK&M Rating Agency has affirmed the 'A+' national scale credit rating assigned to bonded loan no. 4-01-76600-H issued by CJSC Upravlenie otkhodami. The outlook is stable.
The 'A' rating indicates that bonded loan no. 4-01-76600-H issued by CJSC Upravlenie otkhodami qualifies as a high credit quality financial instrument to secure the borrower's obligations. The risk of a failure to meet obligations in time is insignificant. The rating assignment was based on the Credit Rating Methodology for Project Financing Companies rev. February 16, 2015, including the amendments and additions dated October 12, 2015.
Bonded loan of series 4-01-76600-H for a total amount of RUB 2.8 billion CJSC Upravlenie otkhodami was placed on November 20, 2013. The bond maturity term is 3,834 days (10.5 years) with final maturity in May 2024. CJSC Upravlenie otkhodami placed the bonds with the aim of raising financial resources in the securities market to finance and implement the project of creating and subsequently operating a utility infrastructure asset in Saratov region, namely, a solid domestic waste treatment and disposal (burial) system comprising of waste landfill sites, waste transfer stations, waste recycling plants and bio-composting shops. The project is being implemented under a public private partnership scheme. For the purpose of the project, a concessionary agreement specifying CJSC Upravlenie otkhodami as the concessionary and Saratov region (the environment conservation committee of Saratov region) as the concession provider (hereinafter referred to as the concessionary agreement) was concluded for a period of 25 years. The total cost of the project to create the facilities referred to in the concessionary agreement is approximately RUB 2.2 billion. The initial stage of the capital investment project will be financed with borrowed capital, primarily with bonded loan 4-01-76600-H. At the next stages, the company will self-finance capital expenses.
The main positive rating drivers for bonded loan 4-01-76600-H issued by CJSC Upravlenie otkhodami include the high rating ('A+', with a stable outlook) assigned to CJSC AK&M Rating Agency to the issuer, the availability of guarantees from Saratov region for the project financed with the bonded loan, a flexible debt repayment scheme, sufficient positive cash flows covering the maintenance costs and the debt repayment liabilities, low construction and operation risks under the project.
One of the main positive rating drivers for bonded loan 4-01-76600-H is the high rating ('A+', with a stable outlook) assigned by CJSC AK&M Rating Agency to CJSC Upravlenie otkhodami, the bond issuer. The rating was primarily motivated by the Company's advanced investment project of construction and operation of a utility infrastructure asset (a solid domestic waste treatment and disposal / burial system) in Saratov region, the issuer's healthy financial position and experience in implementing waste management projects in Nizhny Novgorod and Volgograd regions.
Another key argument for the high bonded loan rating is the availability of guarantees provided by the government of Saratov region for the project implemented. The concessionary agreement between Saratov region and CJSC Upravlenie otkhodami provide for the complete reimbursement of principal debt and interest payments on bond issues should the concessionary agreement be terminated (should the concessionary default on its obligations, among other reasons). The bonded loan obligations shall be discharged even if the project or its implementation faces contingencies including considerable deterioration of the project's financial metrics. Besides, under the concessionary agreement, the waste treatment and disposal / burial tariff is based on the Company's expenses and includes a standard profit derivative of the amount of expenses, which guarantees the break-even level and even profitability of the Company's operations.
The bonded loan repayment scheme also contributes to the rating. While the loan has a certain maturity date, the borrower has an early repayment option. This flexibility ensures the issuer's reasonable capability to meet its obligations arising from the bonded loan.
Our review of the project indicates the sufficient coverage of all expenses for the repayment of obligations by the Issuer'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) during the bond debt repayment period are constantly above 1. Therefore, the expected projected cash flows in terms of the project financial model are sufficient to meet the servicing and repayment obligations as regards the rated bonded loan.
Another positive signal for rating purposes is a low level of risks directly related to the construction and operation of the facilities referred to in the concessionary agreement, owing to the specific concessionary agreement terms and conditions, relative simplicity of the facilities and highly proven operation techniques. In fact, it is the general contractor that is exposed to construction risks, not CJSC Upravlenie otkhodami, the bond issuer.
The key rating constraints for bonded loan 4-01-76600-H of CJSC Upravlenie otkhodami is a large share of borrowings in the financing of its core activity, a risk of higher cost of borrowings and a risk of lower-than-projected incomes due to the poor collectability of utility payments.
The substantial amount of borrowings raised to finance the activity of CJSC Upravlenie otkhodami is a major rating constraint. The percentage of borrowed capital in the financing of capital expenses at the initial stage of the project approaches 100%.
Given the magnitude of borrowings, the growing amount of coupon payments in 2016-2017 resulting from higher coupon rates amidst today's faster inflation rates is a notable risk factor for the project. The second coupon rate on bond issue 4-01-76600-H increased considerably to 15.4% against the first coupon rate of 11%. As a result, the annual payment per bond of series 4-01-76600-H reached RUB 154.42 in the second coupon period against RUB 110.30 first coupon period. The total amount of payable on bond issue 4-01-76600-H for the second coupon period (2015-2016) is RUB 432,381,320.
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 Saratov region have an element of uncertainty.
Full Issuer name: Closed Joint-Stock Company Upravlenie otkhodami
Short Issuer name: CJSC Upravlenie otkhodami
Issuer location: Varshavskoye Highway 95 bld. 1, 117556 Moscow, Russia
AK&M Rating Agency assigned a credit rating to bond issue 4-01-76600-H of CJSC Upravlenie otkhodami on October 9, 2013. The last rating action in relation to the bond issue was taken on December 22, 2014. All rating action announcements are available on the akmrating.ru website.
The rating is valid until December 2016. AK&M Rating Agency may revise the rating and/or the outlook during this period if circumstances fundamentally influencing the level of creditworthiness are revealed.
For estimation purposes, we completely rely on the reliability of information provided by the Company. The rationale for AK&M Rating Agency's judgment on the rating may include information acquired from other sources we deem to be reliable; however, the agency does not check the input data exhaustively and disclaims all responsibility for their possible errors.
This press release is based on the Statement of assignment of a credit rating to bond issue 4-01-76600-H of CJSC Upravlenie otkhodami. The rating assignment was based on the Credit Rating Methodology for Project Financing Companies rev. February 16, 2015, including the amendments and additions dated October 12, 2015.
The 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 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.
AK&M Rating Agency
Ul. Gubkina 3, Moscow, Russia
Phone no. (495) 916-70-30, fax no.: (499) 132-69-18.