OREANDA-NEWS. The change in outlook from “stable” to “positive” reflects anticipated growth in business and market positions. The rating itself is reaffirmed at “BB-“ on the international scale and “BBB-“ on the national scale.

The rating is based on a monopoly position in the Nizhni Novgorod regional market for waste processing services, a high operating margin, strong backing from the regional administration and a concession agreement that provides for fees sufficient to cover both operating and investment costs.

Constraining factors include less than full capacity usage, a high debt burden and high uncertainty risks associated with a new business project.

The ten-year, R1bn interest-bearing, non-convertible documentary bond series issued by ZAO “Upravleniye Otkhodami – NN” [trs. NN Waste Management CJSC] was used to finance the construction and operation of solid waste sorting, processing and disposal facilities under the terms of a concession contract between the issuer and the Nizhni Novgorod regional authorities. The bonds are inflation-indexed: all coupon payments except the first pay 3% plus the consumer inflation rate as of the last full month preceding payment. If the concession is cancelled or its terms change significantly the bonds may be redeemed ahead of schedule.

ZAO “Upravleniye Otkhodami – NN” is a private-sector Russian company that began operations in early 2013 after completing construction of a solid waste sorting and disposal facility in Nizhni Novgorod region. The issuer has signed a concession agreement with the regional authorities to construct and operate waste processing facilities in Gorodets and Balakhna districts for a period of twenty-five years; the two sites have annual capacities of 100 000 and 160 000 tonnes respectively.

The company is controlled by A.G. Gavrilenko, who has close business ties to the asset management company ZAO Leader and the investment company GK Alor.

The issuer’s debt burden is very high and financial results are currently negative due to the short period elapsed since operations began and the resulting underuse of capacity the second waste processing facility. Re-financing prospects are judged strong. Long-term debt predominates; the associated currency risk is minimal, while interest-rate risk is elevated. Fixed assets (the waste sorting and storage facilities) account for the bulk of the balance sheet. Overall risk sensitivity is elevated. Liquidity is sufficient.