London, 26 July 2021 -- Moody's Investors Service ("Moody's") has today
changed Autobann (JSC SOYUZDORSTROY)'s (Autobann or the company) and Avtoban-Finance,
JSC's outlook to positive from stable. At the same time,
Moody's has affirmed Aubotann's corporate family rating (CFR)
at B1 and probability of default rating (PDR) at B1-PD.
Concurrently, Moody's has also affirmed the B1 rating of the
outstanding rouble-denominated senior unsecured Russian bonds issued
by Avtoban-Finance, JSC, a subsidiary of Autobann.
RATINGS RATIONALE
Today's rating action reflects the completion of the company's
two large construction projects which has reduced project execution and
cost overruns risks, its increased size over the recent years together
with improved profitability, and its strong order backlog which
should help the company to sustain sound operating performance in 2021-23.
Although Autobann's consolidated leverage is likely to be around
5.0x over the next two years, its debt primarily consists
of non-recourse long-term project finance facilities,
with maturities being covered by concession payments from a government-related
entity.
The rating action factors in the successful completion of the construction
of the Central Ring Road Startup facilities 3 and 4. These two
large projects -- total cost was around RUB180 billion, or
more than two annual revenue of Autobann -- were completed with no
major cost overruns and on time. This completion proved the company's
ability to execute large complex construction projects within the defined
parameters. As the projects have entered the operational stage,
with pre-determined concession payments from the State Company
Avtodor (i.e. availability payments) and no exposure to
uncertainty in demand, the financial risks to earnings, cash
flow and the ability to service the projects' debt have subsided.
Autobann have also been able to build up its already sizeable order backlog.
The company won two contracts out of seven for construction of the highway
M-12 between Moscow and Kazan by year-end 2024 in the amount
of RUB148 billion, and secured the Toliatti Bypass concession,
with a construction cost of RUB121 billion. As a result,
its construction order backlog increased to RUB326 billion as of year-end
2020 from RUB175 billion in 2019 and RUB138 billion in 2018, which
should be sufficient for three to four years.
The company demonstrated strong operating performance in 2020, with
revenue increasing by 22% to RUB85 billion ($1.2
billion) and Moody's-adjusted EBITDA by 60% to RUB23
billion, and EBITDA margin expanding to a record 27% from
21% in 2019 and 18% in 2018. In addition, Autobann's
scale of operations increased materially over the last five years as revenue
grew by 150% and EBITDA by 620% over this period.
Moody's expects the company to sustain its enlarged revenue in 2021-23.
Its EBITDA margin is likely to moderate to 20%-25%
in the next two years which is still above the last five-year average
of 18%.
The rating action also reflects Autobann's predominantly non-recourse
debt structure. Out of RUB75 billion of Moody's-adjusted
debt as of 31 December 2020, RUB61 billion was the concession-related
debt (mainly for the Startup facilities 3 and 4) provided for 16-17
years by the state-controlled banks, which has no direct
recourse to the company and is backed by cash flows from a government-related
entity. Although the consolidated debt will increase to RUB100
billion in 2021 and RUB110 billion in 2022 due to the final disbursements
for the Startup Facility 4 and a new non-recourse debt facility
for the Toliatti Bypass concession, the company's recourse
debt should decrease to below RUB10 billion over the same period.
Therefore, the consolidated leverage is likely to increase to around
5.0x in 2021-22 from 3.2x in 2020 and 4.0x
in 2019, while the recourse-only leverage (excluding concessions-related
non-recourse debt) should decline to or below 0.5x over
the next two years from 0.6x in 2020.
At the same time, the rating action takes into account the increased
complexity of the company's business model and, as a result,
its financial reporting, because of the consolidation of the construction
business and concession projects at different stages of implementation
(i.e. construction and operational). This is partially
mitigated by existing disclosures and information furnishing by the management
team which help Moody's to assess the company's credit quality
and associated risks.
The rating also factors in the company's (1) number three position
by revenue in the Russian road construction industry, with 10%
market share, and number one position in the road concession segment;
(2) strong long-term experience in construction and focus on operating
efficiency and digitalization of business processes; (3) low-risk
business model, whereby most projects relate to the construction
of important federal and regional roads and are performed under contracts
with state bodies; (4) the supportive market fundamentals due to
the state's large spending on road construction; (5) the company's
reputation as a reliable contractor with strong in-house expertise;
and (6) its historical adherence to a prudent financial policy.
At the same time, the rating takes into account Autobann's
(1) modest scale relative to its global peers; (2) reliance on the
Russian road construction market; (3) high project and customer concentration
with exposure to large-scale complex construction projects;
(4) negative consolidated free cash flow (FCF) due to the ongoing expansion
of the concession business with a long-term payback; and (5)
corporate governance risks associated with the company's concentrated
shareholder structure.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) CONSIDERATIONS
Autobann's rating factors in governance considerations, in particular
its concentrated ownership structure, with 100% of its shares
owned by its CEO Aleksey Andreev, which creates the risk of rapid
changes in the company's strategy and development plans, revisions
to its financial policy and an increase in shareholder payouts that could
weaken the company's credit quality. The risk is partially mitigated
by the company's track record of adherence to prudent financial policies,
conservative approach to project selection and development strategy.
RATIONALE FOR POSITIVE OUTLOOK
The positive outlook reflects the company's strong positioning within
the current rating category and the possibility of an upgrade over the
next 12-18 months, subject to the company's (1) sustaining
its strong operating performance and large order backlog; (2) maintaining
its recourse-only leverage commensurate with the higher rating;
(3) pursuing a prudent financial policy, with sound risk management
and healthy liquidity; and (4) improving transparency and information
disclosure with respect to financial impact of various concession projects
on the company's financial results and liquidity at both -
holding and consolidated level.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
A rating upgrade would require good transparency over and visibility into
the impact of the concession projects on Autobann's medium to longer
term credit and risk profile, as well as robust liquidity position.
This is provided the company continues to (1) demonstrate a track record
of strong operating and financial performance; (2) maintain a strong
balance sheet on a recourse basis, with Moody's-adjusted
recourse debt/EBITDA staying sustainably below 2.5x; and (3)
pursue a conservative financial policy.
Autobann's rating could come under downward pressure should the company
face (1) a material deterioration in its business or financial profile,
illustrated by a visible erosion of profitability, as well as adjusted
recourse debt/EBITDA increasing substantially above 3.5x on sustained
basis; and (2) increasing financial and operating risks related to
the company's large concession projects. A material deterioration
of the company's liquidity profile could also exert downward pressure
on the rating.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Construction Industry
published in March 2017 and available at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1061454.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Headquartered in Moscow, Autobann is one of the leading Russian
infrastructure construction companies specialising in road construction.
The company participates in large-scale federal road construction
projects, as well as regional projects mostly in the Central and
Volga federal districts of Russia. In 2020, Autobann reported
RUB85 billion ($1.2 billion) in revenue. The group
is fully owned by Aleksey Andreev, who is also the CEO of the company.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
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Mikhail Shipilov
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Limited, Russian Branch
7th floor, Four Winds Plaza
21 1st Tverskaya-Yamskaya St.
Moscow 125047
Russia
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Victoria Maisuradze
Associate Managing Director
Corporate Finance Group
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