ACRA assigns BB+(RU) to ELDORADO LLC, outlook Stable

The credit rating of ELDORADO LLC (hereinafter – Eldorado or the Company) is based on its high debt load and weak corporate governance, on the one hand, and adequate business profile and moderate liquidity, business size and profitability, on the other.

Eldorado is the third largest in terms of revenues Russian multiproduct nationwide retailer specializing on home appliances and consumer electronics sales. The company is owned by OOO Safmar Retail, which in turn belongs to the Gutseriev-Shishkhanov family.

Key rating assessment factors

High debt load is largely related to guarantees provided by Eldorado for the USD 350 mln worth loan taken out by the parent company. As a result, its total debt to FFO ratio before fixed charges ran into 8.2x as of December 31, 2016. By end-2016, FFO before fixed charges divided by the latter reached 1.2x and is expected to retreat to 1.0–1.1x starting 2017.

Moderate liquidity of Eldorado depends largely on the RUB 7 bln worth borrowing limit, which will enable the Company to execute practically all its obligations even if existing creditors refuse to refinance loans. The short term liquidity ratio for 2017 will stand at 1.75x. Later the aforementioned ratio will vary from 1.1 to 1.5x and will depend on the Company’s ability to refinance its current debt.

Adequate business profile is determined by Eldorado’s strong brand and efficient brand policy as well as actively developed online sales segment, which en masse increase diversification of formats used by the Company.

Weak corporate governance. The Company does not have any formalized development strategy, nor can it boast clearly regulated risk management, while the Board of Directors is still at the formation stage. In the course of rating analysis, the Agency had no information about the financial standing of Eldorado’s parent entities.

Moderate size and profitability. As of end-2016, Eldorado posted RUB 111 bln in revenues, with FFO before fixed charges and taxes fetching RUB 9.7 bln and FFO margin before fixed charges reaching 8.7%. EBITDAR per 1 square meter ran into RUB 12.9 thousand, which is somewhat lower than the same indicator shown by peers.

Key assumptions

  • Retaining the current business format in case the owner successfully completes the acquisition of M.Video;
  • Network growing by 10–15 stores per year;
  • Average exchange rate within RUB 60–70 / USD;
  • No dividend payout in addition to servicing the loan provided by OOO Safmar Retail;
  • Sustaining moderate liquidity via the RUB 7 bln worth credit line.

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:

  • Material debt load decline;
  • Material corporate governance improvement.

A negative rating action may be prompted by:

  • Debt load growth, or tightening loan agreement terms;
  • Average exchange rate growth to RUB 75 / USD;
  • Dividend payout in addition to servicing the loan provided by OOO Safmar Retail;
  • Material deterioration of access to external liquidity sources.

Rating components

Standalone creditworthiness assessment (SCA): bb+

Adjustments: none.

Issue ratings

The company has no securities issues outstanding.

Regulatory disclosure

The credit rating has been assigned under the national scale for the Russian Federation and is 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.

A credit rating has been assigned to ELDORADO LLC for the first time. The credit rating and its outlook are expected to be revised within one year following the rating action (March 3, 2017).

The assigned credit rating is based on the data provided by ELDORADO LLC, information from publicly available sources, as well as ACRA’s own databases. The credit rating is solicited, and ELDORADO LLC participated in its assignment.

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

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

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