The Expert RA rating agency upgraded the credit rating of the non-financial company Demetra-Holding LLC to ruBBB+ and changed the rating outlook to stable. Previously, the company had the ruBBB rating with a positive outlook.
The credit rating of Demetra-Holding LLC is determined by the strong industry risk profile, moderately high assessment of its market and competitive positions, acceptable debt burden, high liquidity, high profitability, and moderately low level of corporate risks. The credit rating upgrade resulted from the improved financial performance of Demetra-Holding LLC due to an increase in grain transshipments for export, greater hopper fleet, the positive impact of previously acquired and consolidated assets, as well as cost optimization.
Demetra-Holding LLC (hereinafter referred to as the "company" or "Demetra–Holding") consolidates companies in the Russian grain trade and export logistics market. The company was incorporated at the end of 2018 with the objective of establishing a vertically integrated infrastructure holding company. The company's strategy is to ensure the vertical integration of all key stages of the grain trade chain: purchase of grain from the producer, grain storage in elevators, cargo transportation by rail, product storage and transshipment for export using deep-water terminals, as well as the development of digital projects to automate transportation of agricultural products supported by legally binding electronic documents.
As of December 31, 2023, the company included the following key entities for IFRS consolidation purposes: Demetra Trading LLC, Rusagrotrans LLC, Novorossiysk Grain Terminal LLC (NGT LLC), Ipatovskiy Grain Processing Plant LLC, Oktyabrskiy elevator LLC, LP Trans JSC, TransLes LLC, Cargo Company LLC, Chernyshkovskiy elevator LLC, Dimitrovgradskiy elevator LLC and 75.01% interest in Smartseeds Group (SmartContract LLC and Smartseeds LLC). The company has ownership interests in the following entities: 50% interest in Taman Grain Terminal Complex LLC (TGTC LLC) (the deep-water grain transshipment terminal) and 35.36% interest in Novorossiysk Grain Processing Plant PJSC (NGPP PJSC). In the first half of 2024, the company acquired 75% ownership interest in SibPromAgro to increase its presence in the Siberian market and 100% interest in Siam Consulting LLC.
The company's credit rating was assigned based on the IFRS consolidated financial statements of Demetra-Holding LLC.
Justification of the rating
Strong industry risk profile. More than half of the company's EBITDA is generated by the Railway Division (Rusagrotrans LLC, LP Trans JSC, Cargo Company LLC and TransLes LLC). The holding company's end-to-end grain supply chain improves its resilience to external shocks. About 90% of all Russian grain exports are carried out through the Azov-Black Sea basin, where the company operates the Novorossiysk Grain Terminal, one of the largest in the south of Russia. The company has ownership interests in the largest terminals located in the south of Russia – TGTC LLC and NGPP LLC. Moreover, Demetra-Holding is actively developing its railway and port divisions expanding the hopper fleet and implementing projects to improve the offshore infrastructure. The company is one of the Russian grain export transshipment leaders.
Moderate high assessment of market and competitive positions. The company has significant competitive advantages while consolidating a variety of logistics and other grain trading assets in its portfolio. However, the holding company is exposed to yield volatility, which has an impact on the assessment. The company is not dependent on major buyers or suppliers due to the scale of its operations. The company's assets are geographically diversified and insured by reliable insurance companies, which has a positive impact on its valuation.
Acceptable debt burden. As of December 31, 2023, the debt ratio calculated as the ratio of debt adjusted for available cash (net debt) to EBITDA amounted to 3.9x vs 5.7x as of December 31, 2022. The debt burden decreased due to a significant strengthening of EBITDA. Net debt/EBITDA ratio is expected to remain at 3.4x in the medium term. EBITDA/%% interest expense coverage ratio as of December 31, 2023 (2.6x) was higher compared to December 31, 2022 (1.6x). Interest expense coverage ratio is expected to remain at 1.8x or above in the forecast periods.
High liquidity. The Company has sufficient liquidity to service debt, cover capital expenditures and other payments on a one-year horizon. The company's debt portfolio is sufficiently diversified by borrowing sources – liabilities include bonds, investment loans, finance lease commitments and working capital loans, while most of the debt portfolio has long maturities. Additionally, the company has a significant amount of available undrawn credit lines. The currency risk Demetra-Holding is exposed to is effectively managed through the implementation of various hedging mechanisms, including forward transactions.
High profitability. The company's EBITDA margin increased by 2 p.p. to 30% from 28% in 2022 due to increased volumes of grain purchased and transshipped for export, as well as the positive impact of previously acquired and consolidated assets in 2023. Profitability is expected to remain at 22% or above.
Moderate low level of corporate risks. The assessment is positively impacted by high-quality strategic support, including the preparation of a detailed structured financial model, and high rating of risk management quality as the collegial risk management body is operating in the company. However, the assessment is a little bit constrained by the fact that there is no Board of Directors or a collegial executive body in the company. Demetra-Holding plans to establish the Board of Directors in the near future, which can have a positive impact on the corporate risk assessment.
Assessment of external impact
There are no external impact factors.
Rating outlook
The rating has a stable outlook, which implies a high probability of maintaining the current credit rating on the 12-month horizon.
Regulatory disclosures
The credit rating of Demetra-Holding LLC was initially presented on November 08, 2019. The previous rating press release was published on October 26, 2023.
The credit rating is assigned based on the Russian national rating scale and is long-term. The credit rating and the outlook are subject to revision one year from the date of the last rating at the latest.
The methodology for assigning credit ratings to non-financial companies (effective since August 01, 2023) and the methodology for assessing external impact on the credit rating (effective since February 05, 2024) were applied when assigning the credit rating (https://raexpert.ru/ratings/methods/current).
The assigned credit rating and the outlook are based on the essential information about the rated entity, which is available to Expert RA JSC and the reliability and quality of which is considered appropriate by Expert RA JSC. The key information sources used for rating purposes included the data provided by the Bank of Russia, Demetra-Holding LLC and Expert RA JSC. The information used by Expert RA JSC for rating purposes was sufficient enough to apply the methodology.
The credit rating was assigned under the relevant agreement, and Demetra-Holding LLC was involved in the assignment of the rating.
The number of rating committee members was sufficient to constitute a quorum. The leading rating analyst presented the factors that have impact on the credit rating to the rating committee, and the committee members expressed their opinions and suggestions. The chairman of the rating committee encouraged each member of the rating committee to express an opinion before voting.
Expert RA JSC has not provided additional services to Demetra-Holding LLC over the past 12 months.
