November 05, 2008 | Cbonds
|Fitch Ratings-London-5 November 2008: Fitch Ratings has today changed the Outlooks on Russian property developer JSC OPIN’s (OPIN) Long-term Issuer Default Rating (IDR) and National Long-term rating to Stable from Positive. The agency has simultaneously downgraded OPIN’s National Long-term rating to 'BBB(rus)' from 'BBB+(rus)', and affirmed its Long- and Short-term IDR at 'B'. |
The rating action reflects Fitch’s belief that OPIN is unlikely to successfully execute its planned expansion strategy during H208 and FY09 and meet its financial forecasts. The agency expects OPIN to deliver considerably fewer property units in 2009 and 2010 than previously forecast, with profit margins also expected to be lower-than-anticipated, due to falling property demand and a lack of external debt to fund new projects.
The lack of external debt - caused by the ongoing global liquidity squeeze affecting Russia’s real estate market - will likely prevent OPIN from achieving its 2008 fund-raising targets. Although OPIN appears to have sufficient funds to complete its current projects, partly aided by a switch back to a pre-sales model (whereby construction is funded by customer deposits), the property developer may find it harder to fund future projects. This could restrict its medium-term expansion plans and reduce future cash flows.
Demand for OPIN’s properties is expected to weaken during Q408 and 2009, driven by falling GDP growth (Fitch recently revised its 2009 GDP forecasts for Russia to 4% from 6.7%), and the reduction of foreign investment into Russian real estate. Demand is also likely to be affected by the prospect of rising unemployment, rising mortgage rates and increasingly negative sentiment among potential real estate buyers. OPIN’s residential operations also tend to concentrate on ‘elite’ residencies, the purchase of which tends to be more discretionary than in the mass-market segment, and therefore in Fitch’s opinion may be more exposed to falling demand.
OPIN’s credit profile has weakened slightly in recent weeks in the face of these pressures which are expected to persist. However, Fitch believes the company’s IDRs retain some headroom at the current level of ‘B’, and therefore the Outlook is Stable. Fitch also believes that OPIN is better placed than most of its Russian real estate peers to weather current conditions. The company continues to benefit from its large, equity-funded landbank (which is big enough to support approximately 40 years of operations), its ability to self-finance projects through pre-sales, and a competent and experienced management team. Furthermore, OPIN has a manageable liquidity position, with a relatively back-ended maturity profile and sufficient cash to cover short-term debt (USD103m as at end-H108), interest and committed capex by approximately 1x as of October 2008. The company also has access to long-term committed undrawn facilities that could be used to fund a portion of OPIN’s future capex.
Nevertheless, concerns remain, and Fitch will continue to monitor market conditions for signs of further deterioration. Potential problems include a possible scale back in infrastructure investment by the Russian government due to the country’s ongoing financial troubles. This could reduce demand for OPIN’s future residential projects, as many of these will be located next to the proposed - but as yet incomplete – Moscow-St. Petersburg highway. Further depreciation of the rouble relative to the US dollar could also raise problems for OPIN, as much of its debt is dollar-denominated while its cash flow is predominately rouble-denominated. This could inflate OPIN’s debt burden relative to its cash flows. Fitch will also continue to monitor management’s reaction to the ongoing difficulties in the real estate market.
Company: INGRAD (PAO)
|Full company name||PAO INGRAD|
|Country of risk||Russia|
|Country of registration||Russia|
|Industry||Construction and development|