Russia's Largest Construction Company On The Brink Of Financial Collapse
- 7.11.2024, 15:03
The developer was hit by a sharp increase in the Central Bank of the Russian Federation interest rate and the curtailment of preferential mortgage programs.
A sharp increase in the Central Bank of the Russian Federation interest rate and the curtailment of preferential mortgage programs hit Russia's largest developer.
The Samolet Group of Companies, which builds residential buildings with an area of 5.5 million square meters and has a land bank of almost 50 million square meters, is experiencing financial problems, Forbes reports, citing sources close to the company.
According to them, due to financial difficulties, the main owner of Samolet, Mikhail Kenin, is trying to sell his stake in the company — 31.6% of shares with a market value of 26.5 billion rubles.
“Things are very bad there, and a sale is one of the possible scenarios,” a source in the company accompanying the deal told Forbes. According to other sources in the development market, other owners of Samolet may also sell their shares.
With offices in 300 cities in Russia and more than 10,000 employees, Samolet has fallen victim to rising loan prices and a collapse in demand for mortgages. In the third quarter, its sales fell by 44% in square meters and 37% in money. At the end of the first half of the year, Samolet's profit margin shrank to a paltry 3% (versus 9% a year earlier), net profit was half that, and net debt increased by a quarter.
Samolet's bonds have been falling rapidly on the Moscow Exchange for several months now: the securities maturing in 2027 have lost 13% of their value since the end of August, half of which has been lost in the last two weeks. They are trading at 83% of their face value, and their yield has soared to 36.3% per annum. The company's shares fell by 9% during trading on Thursday.
Samolet is one of the systemically important enterprises and will probably have to be saved by the state, says Janis Kluge, a research fellow at the German Institute for International Security Studies. “Construction companies will be among the first victims of high interest rates in Russia,” he adds.
Industrial enterprises may be next in line. Already now, on average, every fifth company in the manufacturing sector is experiencing difficulties with repaying loans, according to the CMAKS analytical center, which is close to the government. In wood processing, this share reaches 22-24%, in the production of leather and paper products — 29-34%, and in shipbuilding and aircraft manufacturing — as much as 57%. According to CMAKS estimates, on average, companies have to give up every fourth ruble of profit to pay interest on debt — and this is the highest level in the last 5 years.
A wave of defaults due to high interest rates on loans will cover the economy in 2025, according to debt market participants surveyed by Expert RA: 35% expect it in the second half of the year, 27% — in the first, and only a minority — 18% — do not foresee any problems.
Difficulties with debt servicing in 2025 will arise for companies that will not be able to pass on the growth of interest payments to consumers, according to Dmitry Sergeev, chief investment consultant at Veles Capital Investment Company. At the same time, the financial position of issuers may change so quickly that rating agencies will only be able to state financial insolvency, the expert believes.