According to LSR Group CEO Igor Levit, the debut publication of the international credit rating is another step in the Company's efforts to introduce best practices of corporate governance and enhance transparency of our business. «Given the rapid growth shown by LSR Group over the recent years and the increasing competition both in our key markets and the international capital markets, we consider it appropriate to adhere to the best standards of corporate governance and information disclosure. In this regard, the independent opinion of international credit rating agencies regarding our industry and the financial stability of our company is essential for us as well as for our partners and investors», commented Igor Levit. LSR Group is the only construction company in Russia that has received a B1 rating from Moody's, the highest amongst its peers.
On July 2, 2007 Moody’s Investors Service assigned a B1 corporate family rating and a B1 probability of default rating to St. Petersburg/Russia based LSR Group. At the same time, Moody’s Interfax Rating Agency, which is majority owned by Moody’s, assigned an A1.ru national scale credit rating («NSR»). The outlook on all ratings is stable.
The B1 Corporate Family for LSR is based on:
1. LSR’s strong market position both in its building materials business as well as in its development of luxury and economy residential real estate in St. Petersburg, which is one of the most important regions in Russia;
2. Good access to aggregates and other input materials for its building materials division, as well as sufficient availability of plots for further developments, both being scarce and constituting high barriers to entry to any potential newcomers to these markets;
3. The group’s vertically integrated business model, providing it with good diversification and access to materials in a market and region that may face supply shortages in the residential construction sector in the medium term;
4. The availability of significant reserves in both its real estate portfolio under development, with revenues being only recognized at completion, and also in its sizeable land bank including undeveloped land as well as land which is currently under development;
5. Moody’s expectation that the dynamic residential construction growth and strong demand for building materials in the St Petersburg region will continue over the short to medium term.
While assigning its rating, Moody's took into account a number of constraints including:
1. The geography of LSR Group's construction and real estate development business mainly exposed to St. Petersburg and Leningrad Oblast;
2. The risks related to the management of a strongly growing company going forward;
3. The relatively high leverage of the company;
4. The risks associated with the cyclicality of the real estate development market in general, and the lack of a stable legal framework.
OAO LSR Groupis a vertically integrated diversified holding company, a leader of the Russian construction industry. Its core business areas are building materials manufacturing, construction and real estate development. The Group includes enterprises for aggregate extraction and processing, building materials manufacturing and transportation, and housing construction — from mass market large-panel housing to elite residential property built after designs made by leading domestic and foreign architects. LSR Group has enterprises and offices in St. Petersburg, Moscow, a number of cities in Leningrad Oblast, in Lithuania, Latvia, Estonia and the Ukraine. According to the audited consolidated IFRS results of OAO LSR Group, its earnings in 2006 amounted to 21.1 billion rubles, a 61% increase over 2005, pre-tax income in 2006 reached 1.76 billion rubles, and net profit stood at 1.1 billion rubles.