PromSvyazCapital Ltd.’s bond is serviced through PromSvyaz Capital B.V. Since the latter also acts as the Offeror for the irrevocable call option on the company’s bonds, the rating analysis was based on data reported by the Offeror.
PromSvyaz Capital B.V. is a holding company which owns stakes in two banks, Promsvyazbank PJSC and Vozrozhdenie Bank, and a block of Eurobonds issued by a first-class bank, and also invests in non-financial assets of the group. The agency positively views the high level of the company’s stress liquidity. As at 30 September 2016, its adjusted assets to liabilities ratio was 2.3x. Its adjusted assets totalled RUB 80.9bn, while its book liabilities, including sureties issued, stood at RUB 34.5bn. The Company acts as an Offeror of the irrevocable call option on bonds issued by PromSvyazCapital Ltd. In November 2016, PromSvyazCapital Ltd. issued a new RUB 10bn bond. As its liabilities grew after the reporting date, its stress liquidity ratio as at the end of 2016 will be down to 2x.
Given its high capital adequacy ratio, its liabilities remain highly diversified across lenders despite a higher leverage. The share of the bonds in its liabilities is expected to reach 16% as at the end of 2016.
The rating is also supported by its high times interest earned ratio, which stood at 1.7x for the period from 30 September 2015 to 30 September 2016. The company’s current ratio (which reflects that the holding company’s largest equity investments are free of encumbrances) is estimated as high by the agency’s analysts. Its current and collaterisable assets to current liabilities ratio was 2.3x as at 30 September 2016.
As at 30 September 2016, the company’s asset quality was estimated to be moderately high. As at 30 September 2016, its ratio of book asset value to adjusted asset value was 0.65x, while its assets are poorly diversified: as at 30 September 2016, its largest equity investment in Promsvyazbank PJSC accounted for 63% of its assets. The agency also noted potential external support from owners, which has a positive influence on the rating. Positive factors in terms of business risks include strong corporate governance, high transparency and full disclosure on beneficial owners.
The agency’s analysts positively view the company’s cash flow adequacy ratio, expected to be 1.2x within the next 18 months. Its available liquidity of RUB 3.57bn comprises adjusted cash as at 30 September 2016, and expected coupon on Eurobonds issued by a first-class bank. The rating also factored in the coupon on a block of Eurobonds from a follow-on offering by the same bank, which will be recognised in the holding company’s balance sheet in April. This will enable the company to maintain sufficient liquidity levels. The agency considered coupon payments on bonds as liquidity uses. Within the next 18 months, these payments will total RUB 2.97bn.
The company also has moderately low FX risk. Its forward contracts allow converting PromSvyaz Capital’s cash flows from Eurobonds into roubles at a fixed USD exchange rate, given that the bonds are serviced in roubles. The agency expects the company to continue hedging its FX risk on coupon payments by transacting with counterparties with credit ratings of at least ‘A+(I)’ from RAEX (Expert RA).
The rating was constrained by the company’s low profitability. For the period from 30 September 2015 to 30 September 2016, its reported income was RUB 72m, while net income adjusted to exclude unrealised revaluation gains stood at RUB 638m. Net income to assets was 0.1%, while adjusted net income was 1% both to assets and equity.
Official registration details of the bond: No. 4-01-44790-Н of 14 April 2016, bond size: RUB 10bn, interest-bearing certificated bearer bonds. As at 30 September 2016, PromSvyaz Capital B.V.’s assets stood at RUB 123.8bn, and equity at RUB 90.3bn.
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Rating methodologies used: bond rating methodology: http://raexpert.ru/ratings/corporatebond/method/after_Jan23_2017/ (the methodology version used has been effective since 23 January 2017). Key sources: PromSvyazCapital Ltd., PromSvyaz Capital B.V., RAEX (Expert RA), Bank of Russia.
The bond credit rating was assigned to the rated entity (rated target) on 20 April 2016. The previous press release on a rating action on the rated entity was published on 20 April 2016. The Rating Committee examined the rating action in question on 17 April 2017. The bond credit rating was initiated by the rated entity (with a rating contract signed with the rated entity). The rated entity took part in the rating exercise. Over the last 12 months the Agency did not provide the rated entity with any additional services (other than assignment and monitoring (affirmation) of the rating in question). The rating has been assigned under the Russian national rating scale and is a long-term rating. The rating reflects all material information, including information received from third parties and from public (publicly available) sources related to the rated entity, which is available to the Agency and which is deemed by the Agency to be sufficiently reliable and of high quality. Information used by the Agency is deemed sufficient for the Agency to apply its methodology.
According to the preliminary reporting (published form) under the Russian Accounting Standards (RAS), PSB net profit for 9M 2016 amounted to RUB 2.0 bn. Income from core banking operations (interest income and fee and commission income) increased by 21% to RUB 36.9 bn.
Promsvyazbank has appointed a new Board of Directors at the Extraordinary General Meeting of shareholders. Lindsay Forbes, representing the interests of the European Bank for Reconstruction and Development, was appointed to the Board.