ACRA affirms BBB+(RU) to JSC MaximaTelecom, outlook Stable, and BBB+(RU) to its bond issues

The credit rating of JSC MaximaTelecom (hereinafter, MaximaTelecom, or the Company) is based on the Company’s high leverage, weak cash flow, and small size. The rating is supported by the strong business profile, high profitability, moderately high liquidity, and operations in highly developed regions.

The “Rating under revision: negative” status has been removed due to the absence of COVID-19 limitations in Moscow that are critical for the Company, as well as ACRA’s belief that such limitations are unlikely to be implemented again.

MaximaTelecom specializes in technological solutions for the digitalization of cities and transportation systems. Among the Company’s largest projects is the creation, development and monetization of the high-speed Wi-Fi network in the Moscow Metro. MaximaTelecom holds a leading position in the market of comprehensive digital urban development projects by creating services for urban and transportation analysis, big data, information targeting, public safety, and monitoring and management of critical infrastructure, including the development of communication networks in transportation systems. The Company’s main owners are a group of investors headed by Sergey Aslanyan.

Key rating assessment factors

Stabilization of financial and operational indicators. In H1 2020, MaximaTelecom’s advertising business was under serious pressure. The number of passengers of the Moscow Metro fell considerably due to citywide limitations, and this led to a significant decline in revenues generated by this area of business. The Company’s revenues were supported by the infrastructure segment. However, it generates lower profitability than advertising and therefore it was not possible to secure growth of FFO before fixed payments in H1 2020 that had initially been predicted. The advertising segment began to recover as the quarantine regime was relaxed in Moscow, however, some new limitations were introduced following growth in the number of reported COVID-19 cases. ACRA was apprehensive about a repeat of the spring situation and therefore the Company’s rating was assigned the status “Rating under revision: negative”. The absence of new tough limitations in Moscow and ACRA’s low expectations of such measures being implemented in the next few months has allowed us to remove the status. ACRA expects the revenues and profitability of MaximaTelecom’s advertising segment to recover by 2021 and also notes the high rate of growth on the infrastructure segment.

High leverage. Lower revenues from the advertising business led to a decline in FFO before fixed payments in this segment, which in turn worsened the debt metrics of MaximaTelecom. According to ACRA’s forecast, the ratio of total debt adjusted for operating lease to FFO before fixed payments may exceed 8.0x by the end of 2020. In addition, ACRA expects that this indicator may decline considerably to lower than 3.5x in 2021, including due to the anticipated recovery of the advertising segment. In the upcoming years the size of leverage will primarily depend on the performance of the infrastructure segment.

Liquidity assessment improved to moderately high. In November 2020, the Company placed a second bond issue, which allowed it to refinance a large part of its debt portfolio and thereby prolong repayment schedules. In addition, the Company has open limits at banks totalling around RUB 2 bln, which also provides considerable support to liquidity. The assessment of this factor is constrained by negative FCF (free cash flow). ACRA assesses FCF profitability for 2020 at -18%, but expects this indicator to turn positive in 2021.

Key assumptions

  • Complete recovery of revenues from advertising to the pre-crisis level by 2022;
  • Recovery of FFO profitability before fixed payments and taxes to 20% in 2021;
  • Adjusted total debt to FFO before fixed payments falling below 3.5x in 2021;
  • Positive FCF from 2021.

Potential outlook or rating change factors

The Stable outlook assumes that the rating will most likely stay unchanged within the 12 to 18-month horizon.

A  positive rating action may be prompted by:

  • Ratio of FFO before fixed payments to fixed payments exceeding 2.5x;
  • Ratio of total debt to FFO before fixed payments falling below 2.0x;
  • FCF profitability exceeding 2%.

A negative rating action may be prompted by:

  • Ratio of total debt to FFO before fixed payments exceeding 5.0x;
  • Ratio of FFO before fixed payments to fixed payments falling below 1.0x;
  • FFO profitability before fixed payments and taxes consistently below 20%;
  • Worsened access to liquidity sources.

Rating components

SCA: bbb+.

Adjustments: none.

Issue ratings

Bond issue JSC MaximaTelecom (RU000A101XD8), maturity: July 14, 2026, call option:  July 18, 2023, issue volume: RUB 3 bln — BBB+(RU).

Bond issue JSC MaximaTelecom (RU000A102DK3), maturity: May 21, 2024, call option:  November 23, 2021, issue volume: RUB 2.5 bln — BBB+(RU).

Rationale. The issues represent senior unsecured debt of MaximaTelecom. Due to the absence of either structural or contractual subordination of the issues, ACRA regards them as equal to other existing and future unsecured and unsubordinated debt obligations of the Company in terms of priority. According to ACRA’s methodology, the credit rating of the issue is equivalent to that of MaximaTelecom, i.e. BBB+(RU).

Regulatory disclosure

The credit ratings have been assigned to JSC MaximaTelecom and the bonds issued by JSC MaximaTelecom (RU000A101XD8, RU000A102DK3) under the national scale for the Russian Federation based on the Methodology for Credit Ratings Assignment to Non-Financial Corporations under the National Scale for the Russian Federation and the Key Concepts Used by the Analytical Credit Rating Agency within the Scope of Its Rating Activities. The Methodology for Assigning Credit Ratings to Individual Issues of Financial Instruments Under the National Scale for the Russian Federation was also applied to assign credit ratings to the above issues.

The credit ratings of JSC MaximaTelecom and the bonds issued by JSC MaximaTelecom (RU000A101XD8, RU000A102DK3) were assigned by ACRA for the first time on February 26, 2020, July 21, 2020, and November 24, 2020, respectively. The credit rating and its outlook and the credit ratings of the bonds issued by JSC MaximaTelecom (RU000A101XD8, RU000A102DK3) are expected to be revised within one year following the publication date of this press release.

The credit ratings were assigned based on the data provided by JSC MaximaTelecom, information from publicly available sources, as well as ACRA’s own databases. The credit ratings are solicited, and JSC MaximaTelecom participated in their assignment.

Disclosure of deviations from the approved methodologies: the Profitability factor was assessed with a deviation from the assessment range specified in the methodology, which is due to the specifics of infrastructure projects and the extraordinary impact of 2020 results on the weighted average value of the indicator, with expectations of its improvement in 2021.

No material discrepancies between the provided data and the data officially disclosed by JSC MaximaTelecom in its financial statements have been discovered.

ACRA provided no additional services to JSC MaximaTelecom. No conflicts of interest were discovered in the course of credit rating assignment.

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