Rating action

Scope Ratings assigns an initial issuer rating of B+ to JSC Nikora Trade (Nikora). Senior unsecured debt is rated BB-. The Outlook is Stable.

Rating rationale

The issuer rating mainly reflects our perception of Nikora as a leading national food retailer as well as its comparatively high level of profitability, due to high bargaining power and the integrated structure of the products’ suppliers within the holding. The issuer rating is constrained by the small size of the company and a weak financial risk profile. The rating also reflects our view on the company operating in an evolving macro-economic and industrial environment, reflecting the risks and opportunities presented by expected industry consolidation.

Rating drivers

Credit-positive

• Profitability higher than peers thanks to small shop formats and integrated vertical structure
• Expected improvement in bargaining power due to Nikora’s growth strategy
• Potential for significant sales growth
• Despite significant expansion, financial debt levels are expected to remain relatively stable
• Key financial metrics are expected to increase slightly, despite huge capex programme

Credit-negative

• Absolute size still small – market shares <5% (including the unorganised food retail market)
• Exposure to Georgia only, enhancing the vulnerability of the group to any macro-changes
• Below-expected equity issuance could put pressure on financing, leading to overall execution risk
• Absence of hedging policy in light of significant exposure to GEL/USD
• Huge capex programme eroding Scope-adjusted FOCF

Rating-change drivers

A positive rating action could be warranted by FFO/SaD and SaD/EBITDA of above 30% and below 3x respectively on a sustainable basis.

A negative rating action could result from a deterioration in credit metrics as indicated by the FFO/SaD ratio falling below 15% and SaD/ EBITDA increasing above 4.0x on a sustained basis.

For the detailed research report please click HERE.

Stress testing & cash flow analysis
No stress testing was performed. Scope performed its standard cash flow forecasting for the company.

Methodology
The methodology used for this rating(s) and/or rating outlook(s) Corporate Rating Methodology is available on www.scoperatings.com.
Historical default rates of Scope Ratings can be viewed in the rating performance report on https://www.scoperatings.com/#governance-and-policies/regulatory-ESMA Please also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope’s definition of default as well as definitions of rating notations can be found in Scope’s public credit rating methodologies on www.scoperatings.com.
The rating outlook indicates the most likely direction of the rating if the rating were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The rated entity and/or its agents participated in the rating process.
The following substantially material sources of information were used to prepare the credit rating: public domain, the rated entity and third parties.
Scope considers the quality of information available to Scope on the rated entity or instrument to be satisfactory. The information and data supporting Scope’s ratings originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the rating or outlook action, the rated entity was given the opportunity to review the rating and/or outlook and the principal grounds on which the credit rating and/or outlook is based. Following that review, the rating was not amended before being issued.

Regulatory Disclosures
This credit rating and/or rating outlook is issued by Scope Ratings GmbH.
Lead analyst Olaf Tölke, Managing Director
Person responsible for approval of the rating: Werner Stäblein, Executive Director
The ratings/outlooks were first released by Scope on 30.03.2018.

Potential conflicts
Please see www.scoperatings.com for a list of potential conflicts of interest related to the issuance of credit ratings.

Conditions of use / exclusion of liability
© 2018 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Analysis GmbH, Scope Investor Services GmbH and Scope Risk Solutions GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data. Scope’s ratings, rating reports, rating opinions, or related research and credit opinions are provided ‘as is’ without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or other damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party as, opinions on relative credit risk and not a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings GmbH at Lennéstrasse 5 D-10785 Berlin.

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