PIK has not yet released financial results for any periods in 2022. Meanwhile, on Tuesday, September 20, the group's largest co-owner, Sergei Gordeev, stepped down as CEO and passed the position to his former deputy Ivan Polandov.
Why did Gordeev, who has been leading the group since June 2014, choose to leave now? Is there cause for concern?
On the group's official website and in business directories such as the Rusprofile.Ru counterparty verification service, Sergey Gordeev is still listed as the CEO of PIK SZ PJSC. The company's press center has confirmed the change in leadership.
It's stated that Gordeev has only transferred operational management of the business and plans to focus on corporate governance and strategic development, including new technological areas. Gordeev emphasized that PIK has achieved significant growth and will require a new level of corporate governance, which he will prioritize. He expressed confidence in Ivan Polandov's experience and leadership qualities to take on day-to-day management tasks.
In 2021, PIK announced results for various periods, but in 2022, they have not published any reports. The reason for this change is unclear.
FitchRatings downgraded the company's credit rating, they missed payments on Eurobonds in May, and several companies within the group went bankrupt. This has led some analysts to speculate about potential issues for the developer.
The assessment of PIK Group's risks so far aligns with the view of Lyudmila Belobragina, a lawyer for Lemchik, Krupsky and Partners. She believes that the bankruptcy of the parent company has not been allowed before and will not be allowed in the future due to its high social importance. If the company's management struggles, state support may be provided. It's worth noting that bankruptcy discussions have arisen periodically since 2009, but no bankruptcy procedures have been implemented.
The failure to pay the Eurobond coupon in May happened because of technical issues due to sanctions on Russia, not because of the company's financial performance. However, PIK hasn't disclosed its 2022 financial results, and there are some concerns about it. We will now discuss the strengths and weaknesses of the developer.
PIK's strengths include the large scale of its operations, leading in the number of projects, future facilities, and geographical presence. In 2021, PIK remained the largest developer in Russia, with 516 billion rubles in cash inflows and a 33% increase in real estate sales to 451 billion rubles. Mortgage transactions accounted for 76% of total sales.
It's worth noting that PIK is considered a key enterprise in Russia, which means it receives special attention and potential assistance from the state.
The diverse nature of activities within the group can be seen in both positive and negative lights. Construction activities are a positive, but related services seem to be expanding beyond the construction realm, possibly overreaching. The attempts to match the huge scope of the mainstream may be a drawback.
While it's common for a developer to have its own sales department, PIK took it further and created a subsidiary, PIK-Broker, which appears to be focusing more on expanding into the real estate market rather than just serving the developer's needs. The pik-broker website interface has notably changed, with a decrease in the number of apartments offered. It appears that a significant amount of money was invested in PIK-Broker.
Another notable project by PIK Group is the PIK-Comfort management company, which allows the developer to transfer newly built houses for management. This resolves various issues and seems profitable. However, despite serving 50 million square meters of housing in 2020 and generating a revenue of 15 billion rubles in 2021, PIK-Comfort incurred a loss of 814 million rubles. The reason for this loss is uncertain: negligent management or excessive tax optimization?
The tenants accused the management company of almost looting and the Governor of the Moscow Region demanded the expulsion of non-working people from the cities of the Moscow Region where PIK-Comfort is located.
The new trend of offering furnished apartments led to PIK starting its own furniture production. It's convenient to buy a furnished apartment with mortgage money, but it may be a bit more expensive. However, it helps avoid the hassle of buying furniture while paying off a mortgage. It's an attempt to expand market segments, but it could cancel out the initial idea due to financial reasons.
The main risks for the developer are related to high debt. PIK SZ had a total credit debt of 447.29 billion rubles in 2021, with project financing at 336.44 billion rubles. Loan funds in escrow accounts have preferential rates, but PIK benefits from only half of such loans. 221.21 billion rubles are loans received by the developer with an extra charge of up to 4% by the Central Bank of the Russian Federation.
When the Central Bank rate was at 4%, the project financing was serviced at a maximum of 8%. When the Central Bank raised the rate to 20% in March 2022, servicing a multi-billion dollar debt became very expensive.
The construction industry, not just the construction giant, may struggle with excessive loads. The number of projects and square meters under construction is growing, financed by bank loans and credit funds for apartments. Delays from contractors also add to this burden. Developers manage to provide mortgages at a low interest rate, but there's a concern about what would happen if the system fails.
Bankruptcy reports of several PIK subsidiaries are causing concern, and it's best for investors and buyers to remain optimistic and purchase properties in a high stage of readiness, especially if money from selling another property is used.
