Stanislav Dubko: «We expect defaults on bonds in real estate»

10.01.2011 11:06
One of the criteria of reliability of the construction company - its credit rating. On the intricacies of the procedure says CEO ratings of "Credit Rating" Stanislav Dubko. How to determine how well the developers are working? Is there a universal mechanism for determining the reliability of the construction companies?

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S. Dubko: Today, one of the criteria for determining the reliability of construction companies is the availability of the credit rating most of the construction company or its debt instruments issued under the financing facilities for real estate. The credit rating of a debt instrument makes it possible to predict the likelihood and timeliness of execution by the Issuer of its obligations. The procedure provides ratings of the study of the environment of the issuer, including, in particular, the analysis of market environment, demand, consumers, competitors and internal environment, in particular, the analysis of financial and business performance, efficiency and financial management, assessing debt load, risk assessment activities and the issuer's ability to minimize them, as well as analysis of investment and construction activities of the issuer, including an analysis of the experience of the issuer or group of companies in construction projects, the possibility of the issuer for financial and other support from the partners of the holding or group of companies, timeliness and quality of construction works . At the same time, the credit rating on the quality, uniformity and completeness of the information that is supplied by the issuer or is available to the rating agency. What companies raised funds for the construction of residential property through the issuance of bonds of trust? How popular was this financing tool?

S. Dubko: No specific characteristics of the enterprises producing target bonds do not exist. They let the big companies with lots of experience and a large number of current projects and newly created companies that do not have over their shoulders, in fact no experience of such activities. Current legislation targeted bond issue has been identified as a legitimate mechanism to attract funds into the construction of residential property. Therefore, all companies that wish to use this mechanism to do this while meeting the demands put forward by the regulations for issuers of such securities.

According to the rating agency, about 30% of housing under construction in Ukraine at the beginning of 2009 was financed by issuing bonds (target, discount and interest). Interest in this source of funding started to decline since the second half of 2008

Total agency "Credit-Rating has been awarded the 405 rating to issue bonds in the amount of target 32.7 bln. Today the agency supports 198 ratings issue bonds in the amount of targeted 19,8 billion UAH. Have to change credit ratings to construction companies for the last year?

S. Dubko: Over the past year, the rating agency "Credit-rating were downgraded 19 credit ratings of companies operating in the construction industry and are involved in real estate transactions. The main reason for reduction - a stop construction work on the project or introducing them to the grave behind schedule, which carries a significant risk of late delivery by issuers of their obligations. In this case, for the period were increased 10 rating companies that are working in the construction industry. The upgrade was related to construction projects in operation and the start of early redemption of bonds of trust.

However, the share of investment ratings in the construction sector is the lowest compared with other sectors of the economy and the overall downward trend in earlier credit rating indicates that maintaining a low reliability of the debt instruments of construction companies. And will the defaults on the target bonds in 2010-2011.?

S. Dubko: In 2010, the building area is still feeling the effects of the crisis that emerged in the occurrence of problems with the financing of projects due to the deterioration of borrowers' access to credit. Indicated deterioration has affected potential buyers, resulting in reduced effective demand, as well as developers who drew loans for its own projects. Where previously the company had several sources of financing of construction projects - own funds, funds from the sale of real estate under construction and borrowed funds (mostly loans from banks), in 2009-2010. the main source for the continuation of work acted funds project owners.

To date, more than 95% proreytingovanyh releases target bonds are rated speculative-grade. In this case, the last two years their share increased due to the deteriorating situation on the Ukrainian construction market.

The agency expects further offensive technical defaults on the issues of trust bonds issued to finance real estate projects. On such issues of work carried out at different rates, some objects have a degree of readiness of over 70%, and a number of projects are in the process of commissioning. In this case, the issuers are in parallel talks with investors regarding the possibility of delay in repayment of bonds of trust (repayment of money, exchanged for new debt instruments, etc.). Complete defaults on issues of trust bonds agency in the near future does not expect.

To prevent the possibility of technical defaults rating agency, has introduced additional features of speculative credit rating of the scale, which not only assess the ability of timely and complete performance by the Issuer of its debt obligations, as well as characterize the probable maximum period of delay in execution of obligations in the event of default. How do you assess the state of the real estate market and construction industry in 2010?

S. Dubko: In the construction industry for 2010 is still a tendency to reduce the volume of construction works. So in January-October 2010 volume of construction work decreased by 9% to the corresponding period last year. At the same monthly rate of decline continues to slow, in particular, in October 2010 there was a slight increase in the volume of construction works in October last year, which was due to earlier development of the appropriation to carry out works in preparation for Euro 2012.

At present, the real estate market continues to remain in a state of stagnation, which is reflected in a small number of purchases and sales of residential and nonresidential real estate. In addition to maintaining a low demand, the major factors affecting the construction industry development in the current period, are also limited access to debt financing for real estate developers and property buyers and the lack of government funding of construction engineering and transport infrastructure. What are the predictions of relative investment attractiveness of Ukrainian real estate?

S. Dubko: investment attractiveness of Ukrainian real estate market remains low. For residential real estate market is primarily due to the low effective demand end customers and limited access to mortgage lending. In such circumstances, investment in the construction or purchase of housing with a view to resale or rental is a cost-effective. Especially given the inflated real estate prices relative to income citizens and the quality of such real estate.

In order for the investment attractiveness of investing in real estate, and hence activity in the residential market increased, the need to increase availability of mortgages, lower house prices and / or increased incomes. To activate the primary market to developers should offer affordable options for housing under construction (this applies to both the cost per square meter, as well as footage of apartments), and state together with industry representatives to form adequate mechanisms to guarantee the timely receipt of the citizens housing in exchange for investment in projects under construction.
Content tags: Property Ratings estate
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