The credit rating assigned to Pioneer Leasing Ltd. (hereinafter, the Company) is based on a moderately low business profile assessment, weak capital adequacy assessment, adequate risk profile assessment, and satisfactory liquidity and funding assessment.
Pioneer Leasing Ltd. is a leasing company that has operated in the leasing market for more than 11 years. The Company provides leasing on buses, passenger and cargo transport, special equipment, equipment, and real estate. The Company’s clients are SMEs, entrepreneurs, and individuals mainly in the Chuvash Republic, which accounted for 85% of the Company’s portfolio as of March 31, 2020. Since 2016, the Company has been the parent company of JSC «NFK-Savings», a professional participant in the securities market. The group includes two other companies that were created for IT projects. The owners of the Company are E. L. Naumov (51.22%) and V. E. Ponomarev (48.78%).
Key rating assessment factors
Moderately low business profile assessment. In 2019, the Company ranked 82nd in leasing portfolio volume and 72nd in new transactions (98th and 83rd a year earlier, respectively). ACRA notes a twofold increase in the Company’s leasing portfolio in 2019. The main share falls on the bus/minibus segment (67%), the demand for which is due to transport reform in Cheboksary. The printing equipment (13%), real estate (9%), and passenger and cargo transport (8%) segments also represent significant shares of the portfolio. ACRA estimates the liquidity of leased assets as above average. The low counterparty diversification of the current leasing portfolio limits the business profile assessment. The largest client accounts for 23% of the portfolio, and the five largest counterparties form 70% of the portfolio. ACRA assesses the quality of the Company’s corporate governance and risk management system as satisfactory. In addition to its main leasing operations, the Company performs management functions in relation to its subsidiaries. To optimize processes, the Company outsources a number of its functions to subsidiaries. In particular, JSC «NFK-Savings» assesses the Company’s risk and acts as the organizer and underwriter for the placement of the Company’s securities, using its expertise as a professional participant in the securities market. The Company operates within the framework of its approved strategy, which in the medium and long terms assumes further growth and development.
The weak capital adequacy assessment is based on a low capital adequacy ratio (CAR) and a satisfactory average capital generation ratio (ACGR). To calculate the CAR, the Company’s capital is adjusted for the volume of investments in its subsidiary NFK-SI Ltd, essentially investments in intangible assets due to the business structure and balance (intangible assets make up 99.9% of the subsidiary’s assets). These investments exceed the amount of internal funds on the Company’s balance sheet. ACGR amounts to 94 bps for the last five years, taking into account adjustments for income and expenses atypical for the Company’s core business.
Adequate risk profile assessment. According to the analysis of the Company’s leasing portfolio, potential problem debt did not exceed 5% as of March 31, 2020. The assessment was made taking into account the impact of the current economic situation on the financial position of the Company’s contractors. At the same time, ACRA notes the Company’s conservative approach to creating impairment reserves for the leasing portfolio when reporting for 2019. This is confirmed by the reserve’s significant recovery in 2020. ACRA notes shares of JSC «NFK-Savings» on the Company’s balance (16% of assets as of March 31, 2020) that are subject to impairment risks as an additional risk factor that limits the risk profile assessment.
Satisfactory liquidity and funding assessment. The Company’s funding structure is moderately diversified. As of March 31, 2020, issued debt securities accounted for 51% of the Company’s liabilities. Bonds and promissory notes represent the Company’s debt securities portfolio in almost equal shares. There are currently three bond issues in circulation equaling RUB 563 mln (placement of the third issue is in progress). The share of bonds in the portfolio is expected to increase over time. Bank loans account for 16% of the Company’s liabilities.
The satisfactory liquidity position is based on a moderately high forecast current liquidity ratio within the 12 to 24-month horizon, standing at more than 1.0 in ACRA’s base case scenario (taking into account plans for new business growth and existing contracts). In ACRA’s stress scenario, the need to attract emergency liquidity is low.
Key assumptions
- Maintaining the current business model within the 12 to 18-month horizon;
- Share of leasing contracts with outstanding payments below 10%.
Potential outlook or rating change factors
The Stable outlook assumes that the rating will most likely stay unchanged within the 12 to 18-month horizon.
A positive rating action may be prompted by:
- Significantly strengthened position in the leasing market;
- Reduced concentration on the largest lessees in the leasing portfolio;
- Significant reducing in non-core assets on the balance sheet.
A negative rating action may be prompted by:
- Deterioration in liquidity position;
- Decreased market position and significant reduction in profitability;
- Excess in problem debt of 10% of the total leasing portfolio.
Rating components
SCA: bb.
Adjustments: none.
Support: none.
Issue ratings
No outstanding issues have been rated.
Regulatory disclosure
The credit rating of Pioneer Leasing Ltd. has been assigned under the national scale for the Russian Federation based on the Methodology for Assigning Credit Ratings to Leasing Companies on the National Scale for the Russian Federation and the Key Concepts Used by the Analytical Credit Rating Agency Within the Scope of Its Rating Activities.
A credit rating has been assigned to Pioneer Leasing Ltd. for the first time. The credit rating and its outlook are expected to be revised within one year following the publication date of this press release.
The credit rating was assigned based on the data provided by Pioneer Leasing Ltd., information from publicly available sources, as well as ACRA’s own databases. The rating analysis was performed using statements of Pioneer Leasing Ltd. composed in compliance with RAS. The credit rating is solicited, and Pioneer Leasing Ltd. participated in its assignment.
No material discrepancies between the provided data and the data officially disclosed by Pioneer Leasing Ltd. in its financial statements have been discovered.
Disclosure of deviations from approved methodologies. The capital adequacy assessment is determined by adjusting the Company’s capital for the volume of financial investments in its subsidiary NFK-SI Ltd, which are essentially investments in intangible assets and therefore, according to ACRA’s methodology, should be deducted from the capital.
ACRA provided no additional services to Pioneer Leasing Ltd. No conflicts of interest were discovered in the course of credit rating assignment.
