ETALON GROUP PLC ("Etalon Group", or the "Company"), one of Russia’s largest and longest-established development and construction companies, announces that its subsidiary Etalon Group Company AO has signed a binding agreement to purchase 51% of the share capital of Leader-Invest JSC (“Leader-Invest”) from Sistema PJSFC (LSE:SSA, MOEX:AFKS), a publicly-traded diversified holding company, and its affiliates (“Sistema”) for RUB 15.2 billion (the “Transaction”).
Etalon Group engaged leading international advisory firms to assist with the Transaction: financial and tax due diligence was performed by PwC; Allen & Overy acted as the legal advisor to Etalon Group as to English and Russian law; and J. P. Morgan Securities plc acted as financial adviser to Etalon Group. An approval from the Federal Antimonopoly Service of the Russian Federation with respect to the acquisition has already been obtained. The Transaction has been approved by the Board of Directors. The Transaction will be financed by a long-term credit line provided by Sberbank. Etalon Group intends to complete the integration of Leader-Invest in the third quarter of 2019.
Leader-Invest is one of Moscow’s largest residential developers in terms of land bank and number of projects currently available for sale. Leader-Invest’s primary focus is on infill development projects and integrated development of large-scale mixed use projects in the comfort-, business- and premium-class segments.
Leader-Invest's portfolio includes 31 projects under construction or at the design stage, unsold inventory at eight completed residential complexes, and commercial real estate, with a total NSA of 1.3 million sqm. As of 1 October 2018, Colliers International valued Leader-Invest's portfolio at RUB 66,645 million.
As of 31 December 2018, based on management accounts, Leader-Invest had net debt of RUB 0.3 billion. Leader-Invest prepares IFRS financial statements on an annual and semi-annual basis, and also has a B credit rating with a stable outlook from Standard & Poor’s.
Etalon Group CEO Gennadiy Shcherbina, stated:
“While Etalon Group has traditionally focused on organic growth of its portfolio through the acquisition of individual land plots in its core geographies, we have always stated our readiness to acquire high-quality assets such as Leader-Invest through M&A transactions. We believe that this company meets all the criteria that we have previously announced for such transactions. All of its projects are located in Moscow, within the Moscow Ring Road, with the majority located in close proximity to Moscow’s Third Ring Road, in areas with well-developed infrastructure and good transport accessibility and, most importantly, they do not overlap with Etalon Group’s current portfolio of projects. At the same time, a significant part of Leader-Invest’s portfolio consists of projects in the highly-profitable business- and premium-class segments, while the rest are in Etalon Group’s traditional comfort-class segment. It is equally important that Leader-Invest, as a Sistema portfolio company, has established business processes that we believe to be in accordance with best corporate governance practices, following the principles of transparency, which is essential for Etalon Group as a public company.
“This Transaction will significantly strengthen Etalon Group’s position in Moscow, which is Russia’s most attractive residential real estate market, and will in turn put us in a leading position in terms of the number of projects available for sale in the city, as well as a top position by sales and construction volumes.
“Taking into account that Leader-Invest is a pure developer, without its own construction capacities, we expect to achieve significant synergy, with minimal integration costs. Our vertically-integrated business model will ensure efficient development of Leader-Invest projects and help to reduce the construction and operational costs of projects currently in Leader-Invest’s portfolio, while access to our well-developed sales network will help to significantly accelerate the pace of real estate sales, expand the range of real estate available to Etalon Group customers, and reduce commission fees currently paid to brokers involved in the sale of Leader-Invest properties."
Etalon Group CFO Kirill Bagachenko said:
“As of 31 December 2018, Etalon Group had a net cash position of RUB 2.2 billion. Thanks to this, even taking into account the RUB 15.2 billion transaction, we will maintain a stable financial position with a net debt to FY 2017 EBITDA ratio of 0.85x based on the financial performance and balance sheet position of both companies.
“An equally important factor testifying to Etalon Group’s financial stability is the provision by Sberbank of a credit line for the purchase of Leader-Invest, with an attractive interest rate that is in line with our current loan portfolio and a 5-year repayment term.”
A detailed presentation on the Transaction is available on the Etalon Group website.
This and other recent announcements are available on the Etalon Group website: www.etalongroup.com/investors/news/
Etalon Group IR Team
T: +44 20 8123 1328
T: +44 7554 993 032
T: +7 499 918 3134
About Etalon Group
Founded in 1987 by Viacheslav Zarenkov, Etalon Group has become one of Russia's largest development and construction corporations. The Company focuses on middle class residential real estate in the Moscow and St Petersburg metropolitan areas, where it operates through Etalon Invest and Etalon LenSpetsSMU subsidiaries. With a more than 30-year history, Etalon Group has one of the longest and most successful track records in the Russian real estate industry - since its inception, Etalon Group has commissioned 6.3 million sqm.
Etalon Group's strong reputation among consumers supports its pre-sales business model, which helps the Company to minimise external financing needs for on-going projects while maintaining a secure liquidity position: net debt as of 31 December 2017 was RUB 9.7 billion.
The Company is vertically integrated, which helps it to control costs, quality and timing, as well as to demonstrate best-in-class profitability. Etalon Group employs 5 thousand people, and its nationwide sales and marketing network covers 58 Russian cities.
As of 30 June 2018, Etalon Group's assets comprised 39 projects and a construction and maintenance division, with a total of 2.73 million sqm of unsold net sellable area. Knight Frank valued the Company’s assets at RUB 132,487 million.
For the year ended 31 December 2018, Etalon Group's new contract sales totalled 628 ths sqm, or RUB 68,731 million. Deliveries in 2018 amounted to 479 ths sqm.
The Company recorded revenue of RUB 70.6 billion and EBITDA of RUB 13.2 billion for the year ended 31 December 2017.
Etalon Group’s GDRs have been traded on the Main Market of the London Stock Exchange since 20 April 2011.
19 February 2019