Fitch assigns Eurotorg’s $300m LPNs final 'B' rating

<p> MINSK, Oct 22 - PrimePress. Fitch Ratings has assigned LLC Eurotorg’s loan participation notes (LPNs) worth $300 million a final rating of 'B'/'RR4' following their placement and completion of tender offer for the existing LPNs. </p> <p>   </p> <p> The LPNs are issued by Bonitron Designated Activity Company, an SPV domiciled in Ireland. The SPV is limited to issuing the notes and providing a loan to Eurotorg. The notes are secured by a loan to Eurotorg, which ranks equally with its other senior unsecured obligations. </p> <p>   </p> <p> The issued LPNs are rated in line with Eurotorg's Issuer Default Rating (IDR). The IDR of 'B' continues to reflect the group's small scale, limited diversification outside its domestic market and high FX risks, which weigh on its financial flexibility, relative to international rated peers'. These weaknesses are balanced by its conservative capital structure and a strong position in Belarus's food retail market. </p> <p>   </p> <p> The issued LPNs are rated in line with Eurotorg's Issuer Default Rating (IDR). The IDR of 'B' continues to reflect the group's small scale, limited diversification outside its domestic market and high FX risks, which weigh on its financial flexibility, relative to international rated peers'. These weaknesses are balanced by its conservative capital structure and a strong position in Belarus's food retail market. </p> <p>   </p> <p> The Stable Outlook reflects Fitch's expectation that the company will restore free cash flow (FCF) generation from 2021, after a one-off investment in working capital in 2020. We also assume that political protests in Belarus, which started in August 2020, will not cause any material disruption to its operations. </p> <p>   </p> <p> The rating is supported by Eurotorg's strong market position as the largest food retailer in Belarus, with a 19% market share by sales in 2019. This is higher than the combined market share of the next five competitors. The company benefits from its well-recognised Euroopt brand across the country and has recently launched new discounter formats Hit! and Groshyk to fend off competition in areas highly penetrated by other modern retail chains. </p> <p>   </p> <p> The rating considers Eurotorg's limited geographic diversification as the company operates only in Belarus. Presence across different regions of the country puts it in a stronger position than competitors, but does not reduce concentration risks, as Belarus is a small economy. The small size of the domestic market also leads to Eurotorg's substantially lower business scale (2019 EBITDAR of around USD210 million equivalent) than other Fitch-rated food retailers, such as Russian retailers X5 Retail Group N.V. (BB+/Stable) and Lenta LLC (BB/Positive). </p> <p>   </p> <p> Eurotorg faces high FX risks as its debt is wholly in foreign currency, while its revenue is in Belarusian rubles. In addition, part of Eurotorg's costs (1H20: 2.7% of revenue) is also exposed to FX as operating lease agreements are primarily in hard currency. </p> <p>   </p> <p> “We assume that weak financial market development in Belarus will not allow the company to fully switch the currency of its debt and operating lease agreements to Belarusian rubles over the medium term. Nevertheless, funding in Russian rubles (1H20: 34% of total debt after swap) provides some financial flexibility as Belarusian and Russian rubles have shown some correlation in the past.” </p> <p>   </p> <p> Eurotorg has been operating since 1993, the first shop under the brand name Euroopt was opened in 1997. Eurotorg’s self-estimated share in the retail market of Belarus stands at 19%. End </p>

2020-10-23

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