PIK has not yet published financial results for any of the periods in 2022. At the same time, on Tuesday, September 20, the largest co-owner of the group, Sergei Gordeev, resigned from his duties as general director, transferring this post to his former deputy Ivan Polandov.
Why did Gordeev, who personally led the group since June 2014, decide to leave now? Is there any reason for concern?
On the official website of the group, as well as in business directories, for example, on the Rusprofile.Ru counterparty verification service, Sergey Gordeev continues to be listed as the CEO of PIK SZ PJSC. Information about the change of the head is confirmed by the press center of the company, placing it in the news department.
It says that Gordeev transferred only the operational management of the business, now planning to deal with issues of corporate governance and strategic development, including new technological areas. The billionaire himself, commenting on his decision, pointed out that over the past 8 years, PIK has taken the place of the “unconditional” leader of the construction industry in Russia and is currently operating in 15 regions, reaching an annual housing commissioning of 3 million square meters. “The company has reached a fundamentally new level for itself and for the industry as a whole. Maintaining the set growth rates and moving to a qualitatively new stage of development require not only perfectly tuned operational management mechanisms, but also a fundamentally new level of corporate governance, which I will focus on,” Gordeev said. He emphasized that he was confident in the experience and leadership qualities of Ivan Polandov, who will take on the tasks of day-to-day management of the company.
However, in 2021, PIK announced the results of work for 3 months of 2021 on April 15; on the results for 6 months of 2021 – July 23. On August 30, consolidated financial results for 6 months of 2021 were published. The results report for the 9 months of 2021 was published on October 9, 2021, and for the entire 2021 on January 18, 2022. What happened in 2022? Why did PIK stop publishing reports?
The downgrading of the company’s credit rating by FitchRatings, the developer’s missed payments on the issue of PIK-Corporation-2026 Eurobonds in May and the bankruptcy of several companies included in the group allow some analysts to talk about noticeable problems that the developer may expect.
The assessment of the risks of PIK Group so far leads approximately to the thought expressed by Lyudmila Belobragina, a lawyer for Lemchik, Krupsky and Partners: “The bankruptcy of the parent company was not allowed before and will not be allowed now due to the high social significance of the enterprise and its project. If the management of the company cannot cope on its own, then state injections, the provision of benefits and subsidies are possible. It should be borne in mind that the issue of bankruptcy of both the parent company and subsidiaries has been periodically raised since 2009. In relation to the parent company, over the past ten years, four intentions of creditors to declare PIK Group bankrupt have been published. During the specified period, the bankruptcy procedure was not introduced.
The non-payment of the Eurobond coupon payment in May is rather a consequence of technical problems that arose as a result of the sanctions imposed on Russia, and not an indicator of the company’s financial performance. But PIK is silent about the financial results of work for 2022. And, in our opinion, there are facts that cause some doubts. We list the strengths and weaknesses of the developer.
The strengths include the scale of PIK’s activities. The group of companies is in the lead only in terms of the number of projects and areas of future facilities, but also in geography. In addition to Moscow, PIK is building in St. Petersburg, Yekaterinburg, Tyumen, Novorossiysk, Yaroslavl, Rostov-on-Don, Kaluga, Obninsk, Vladivostok, Yuzhno-Sakhalinsk, Nizhny Novgorod and Kazan. According to the results of work for 2021, PIK Group remained the largest developer in Russia. The total amount of cash inflows amounted to 516 billion rubles. Compared to the previous year, the volume of real estate sales increased by 33%, to 451 billion rubles (2,537 thousand sq. m. were sold), with the share of mortgage transactions in 76% of total sales.
We also recall that PIK is included in the list of backbone enterprises in Russia, which, in fact, means concern about the results of its work and, if necessary, assistance from the state.
But the multidirectional nature of the activities carried out by the companies of the group, as we believe, can be interpreted in two ways. With regard to construction, of course, it should be attributed to the plus: design, production of building materials, construction work and, possibly, finishing. But recently, related services have begun to flourish around this, but far from construction as such services. The main drawbacks were probably the attempts to match the gigantic scope of the mainstream.
It is clear that it is convenient for a developer to have its own sales department, but PIK went further and created a subsidiary, PIK-Broker, whose leaders did not aim to serve the needs of their developer, but to expand into a part of the real estate market. The interface of the pik-broker website has now changed noticeably. A year ago, it was a powerful resource offering almost the main service the urgent purchase of an apartment, which felt the powerful financial back of the big brother (PJSC PIK SZ), plus, to choose from, any object from the projects implemented by PIK. Now there are only 136 apartments in the list of objects offered by PIK-Broker. For comparison, “Miel”, for example, on request “buy an apartment” offers 4326 objects in Moscow and the region. It seems that a lot of money was invested in PIK-Broker.
Another “high-profile” project of the PIK Group is the PIK-Comfort management company. Obviously, it is convenient for the developer to transfer the newly built house under the control of the allied organization. This at least removes a number of controversial issues to eliminate imperfections. Yes, and it seems to be profitable. We often see how the struggle for the right to control the house is being waged. Someone builds a highly profitable business on this. But PIK-Comfort, which, according to information from the official website, already served 50 million square meters of housing in 2020, with a revenue of 15 billion rubles in 2021, was at a loss of 814 million rubles. What is the reason: negligent managers or excessive tax optimization?
There were reproaches against this management company from the tenants, accusing it of almost raiding. In March 2021, the Governor of the Moscow Region, Andrei Vorobyov, mentioning PIK-Comfort at a meeting, demanded that those “who do not want to work” be expelled from the cities of the Moscow Region (in particular, Dolgoprudny). In general, in this case, the project cannot be called problem-free.
A new fad – the offer of apartments not only with decoration, but also with furniture – led to the emergence of PIK’s own furniture production. It is certainly convenient for someone to buy a furnished apartment, having paid for it from mortgage money. As an internal corporate service, this is convenient. Perhaps a little more expensive, but you don’t need to think about where to get money to buy furniture by paying off a mortgage. But an attempt, again, to win back the market segments that go beyond the residential complexes of PIK, justified in many respects by financial opportunities, can also nullify this idea.
The main risks of the developer are associated with high debt load. According to the consolidated financial statements for 2021, the total amount of credit debt of PJSC PIK SZ amounted to 447.29 billion rubles, while the amount of project financing amounted to 336.44 billion rubles. Network resource PROBankruptcy writes: “Loan funds covered by funds in escrow accounts are subject to preferential rates. In case of high sales and receipt of a large amount of funds for escrow, the credit rate is reduced.” But according to the mentioned resource, PIK benefits a little more than half of such loans, and 221.21 billion rubles are loans received by the developer with an extra charge to the rate of the Central Bank of the Russian Federation, reaching up to 4%.
So it turns out that while the Central Bank rate was low, only 4%, the funds raised as project financing were serviced at a maximum of 8%, but imagine what happened when the Central Bank raised the rate to 20% in March 2022. What was it like servicing a multi-billion dollar debt at that moment? And how much did it cost?
Not only the construction giant, but the industry may not be able to withstand such excessive loads. After all, the number of projects under construction and square meters under construction is growing from year to year. Huge sums for the conduct of such construction are bank loans. But ready-made apartments are bought more often with the use of credit funds. That is, for the same objects, a loan is allocated, as it were, twice. Add to this the delays that the developer often receives from contractors. Also a kind of lending? Moreover, by receiving money at the interest of the Central Bank with a markup, developers manage to provide their customers with mortgages at an interest rate that sometimes does not exceed one. Who pays for this discount? But what if at some point the mechanism fails?
These factors, along with reports of bankruptcies of several PIK subsidiaries at once, do cause concern. Probably the best thing that investors and buyers can do in such an environment is to remain optimistic and act with a margin of safety, that is, to acquire properties in a high stage of readiness, especially if money from the sale of a single home is used for the purchase.