Press Releases / 27.09.2016

Press Release as of 27.09.2016

AK&M Rating Agency has assigned an 'A' sub-level 3 national scale long-term credit rating to OJSC Avtokombinat-23. The outlook is stable.

The 'A' rating indicates that OJSC Avtokombinat-23 qualifies as a highly creditworthy enterprise (issuer). The risk of a failure to meet obligations in time is low, the full or partial debt restructuring risk is insignificant.

Currently, the core business of OJSC Avtokombinat-23 is the letting of non-residential premises in the RIO shopping and leisure center located at B. Cheremushkinskaya St. 1, Moscow City.

The key positive rating drivers for OJSC Avtokombinat-23 include an extremely low level of debt, improvements in fundamental balance sheet indicators, good business profitability, as well as a high share of current assets.

Since January 1, 2015, the rated Company has not had debt liabilities (credits and loans) on the balance sheet. Financial claims in relation to the company are limited to accounts payable which are many times below the Company's financial result. The Company reduced accounts payable almost twice in the last 2.5 years. We regard the extremely low level balance sheet liabilities as the essential positive rating driver for OJSC Avtokombinat-23.

On the long-term horizon, the Company has achieved a steady growth of its key balance sheet indicators. In particular, over the period from January 1, 2013 to June 30, 2016 the Compound annual growth rate was 45.5% for equity capital, 31.3% for assets. The steady growth of fundamental balance sheet metrics improves the Company's financial viability reducing its susceptibility to market risks.

Despite a reduction in rental payments, OJSC Avtokombinat-23 maintains a high level of business profitability considerably exceeding the average market levels. In the last 3 years, the Company's average net profit margin has been almost 60%, return on sales approximately 77%, while EBITDA margin exceeds 80%. The high business profitability enables the Company to increase its capital even with weaker gross financial results.

The Company's effectively deals with accounts payable, which ensures a comfortable level of liquidity. In particular, as of July 1, 2016, the ratio of highly liquid current assets (cash and equivalents plus short-term financial investments) to current liabilities was 6.5 (5.5 at the start of the year). The current liquidity ratio on the same dates was 22.1 and 19.7, respectively.

The Company's credit rating is additionally supported by high capital adequacy (the share of capital in liabilities reaching 95% on July 1, 2016), acceptable diversification of financial investments (the share of the largest counterparty being no more than 40%), a high probability of support from affiliates.

The long-term credit rating of OJSC Avtokombinat-23 is constrained by a relatively high level of off-balance sheet liabilities, a reduction in key operational performance indicators, high and poorly diversified debts receivable.

At the end of 2014, the Company provided a surety for the loan granted to Maryina Roshcha Plaza LLC which owns and manages the Raikin Plaza center). As of July 1, 2016, The outstanding debt under the loan agreement (the principal debt) reached USD 154.9 million, exceeding the Company's ruble-denominated revenue for the 12-month period ending on June 30, 2016 many times. Therefore, the surety provider's ability to meet its obligations is extremely low. This weakness is the key rating constraint for OJSC Avtokombinat-23.

The weak business diversification makes the Company directly dependent on the current environment in the target market (letting of non-residential premises). As a result of an increase in vacant premises in Moscow's shopping malls and a reduction in average rental rates, the company's revenue decreased by 31.6% in 2015; this year's rental payments (according to the profit and loss statement) dropped by 23.6% year-on-year. The balance sheet profit reduction was nearly the same (-31.9% and -29.1% year-on-year in 2015 and H1 2016, respectively). The weaker operational performance is a major obstacle for potential investments which could be raised to expand the Company's business horizon.

As of July 1, 2016, Avtokombinat-23's debt receivable totaled RUB 765 million exceeding half of the Company's total assets and the amount of its 12-month revenue. Such a ratio is not typical for corporate balance sheets and financial statements. It should be noted that the largest client, RIO Management LLC (the manager of the RIO shopping and leisure center) accounted for almost 84% of the Company's liabilities, the combined share of two largest debtors reaching 94%.

Another rating constraint is insufficient transparency of OJSC Avtokombinat-23: the company does not run an official website, the last quarterly report published on the public information disclosure portal was the Q3 2013 report.

OJSC Avtokombinat-23 was registered by the Moscow registration chamber on August 5, 1993. The certificate of registration in the Unified State Register of Legal Entities was issued by Inter-district inspectorate no. 39 of Russia's Ministry of Taxes and Tax Collection for Moscow on July 11, 2002. The company's authorized capital consists of 161,850 ordinary nominal book-entry shares with a face value of 1 ruble each.

The core activity of OJSC Avtokombinat-23 (previously providing motor transport services, operating as part of Mosstroytrans) is letting of non-residential premises in the RIO shopping and leisure center located at B. Cheremushkinskaya St. 1, Moscow City. The same address is valid for the Company's executive body (CEO) and the document storage place. The company's auditor  is ExpertAudit LLC (Kaluga), a member of SRO Russian Collegium of Auditors.

According to the audited Russian GAAP (RAS) statement, as of January 1, 2016, assets of Avtokombinat-23 LLC amounted to RUB 1,518 million, equity capital reached RUB 1,458 million.

This press release is based on the Statement of assignment of a credit rating to OJSC Avtokombinat-23. The rating assignment is based on the Credit Rating Methodology for Corporates (Issuers) and Financial Assets (AK&M Rating Agency, 2016).   

AK&M Rating Agency has assigned a long-term credit rating to OJSC Avtokombinat-23 for the first time. All rating action announcements are available on the website.

The rating is valid until September 2017. AK&M Rating Agency may revise the rating and/or the outlook during this period if circumstances fundamentally influencing the Company's long-term credit rating 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.

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 make any investment decisions.

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.


AK&M Rating Agency

Ul. Gubkina 3, Moscow, Russia

Phone no.: (495) 916-70-30, fax no.: (499) 132-69-18