The credit rating and outlook have been affirmed to JSC VEB-leasing (hereinafter, VEB-leasing, or the Company) to reflect ACRA's base case expectations that the Company will, until its liquidation slated for late 2021, continue its operations in support of the transport industry, while remaining a subsidiary of State Development Corporation “VEB.RF” (ACRA rating: AAA(RU), outlook Stable; hereinafter, the Supporting Organization, the SO, or VEB.RF).
The Company's credit rating is equal to the SO's credit rating due to a very high likelihood of extraordinary support from the Supporting Organization.
The recent reform of development institutions provides for the transfer of some assets and liabilities from the Company to JSC "GTLK" (A+(RU), outlook Stable; hereinafter, GTLK). At the moment, it is unclear what assets and liabilities will be transferred to GTLK, their value, as well as the impact of the transfer on the Company's balance sheet and capitalization. According to ACRA's base case expectations, all winding up procedures will be completed and the Company will be liquidated by the end of this year.
VEB-leasing is a specialized leasing company focused on financial and operational leasing services, primarily covering air, railroad, and water transport.
Key rating assessment factors
In ACRA's opinion, the likelihood of support from the Supporting Organization is very high. This reflects the tight integration between the Company and the SO, and ACRA expects that such integration will remain until the Company is liquidated. All assets and liabilities of the Company not transferred to GTLK will most likely be consolidated on the balance sheet of the SO.
Like a year ago, ACRA believes that it is inexpedient to determine the standalone creditworthiness assessment (SCA) of the Company since: 1) the Company's operations are financed mostly by the Supporting Organization; 2) both the Company and the SO share the same risk management and treasury system; 3) the number of the Company's employees is minimum, so that the operational control over the Company is exercised by the SO. The Agency also takes into account the long history and multiple examples of the SO's assistance to the Company both in the form of capital and liquidity.
Therefore, the Company's rating is entirely determined by the very strong ties with the Supporting Organization. The strength of these ties is also evidenced by the cross-default provisions contained in a number of VEB.RF’s debt obligations, according to which a default of the Company or disruption in its operations constitute an event of default for VEB.RF. ACRA also notes that VEB.RF has provided guarantees and suretyships for a number of leasing projects implemented by the Company.
The decline in the capitalization metrics in 2020 was well expected, and it was caused foremost by the financing shipbuilding contracts, in particular, specialized tankers for the transportation of petroleum products and gas condensate. The contracts imply one-off losses at initial recognition for the Company, which had a negative impact on the Company’s capital.
Furthermore, ACRA assesses the current credit quality of the leasing portfolio as quite low. According to ACRA's estimates, the share of accumulated realized problem assets is about 25–30% of the portfolio. These risks are partly mitigated by the relatively high level of coverage of such assets by reserves for impairment, which amount to approximately 85%. The potential for external support still remains the most important factor mitigating possible credit losses. In the past, the Supporting Organization provided capital injections to the Company number of times to form reserves and maintain capital adequacy. ACRA expects that in the future similar assistance will be provided, if necessary.
- Continued potential for external support from the Supporting Organization until the Company is liquidated.
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 negative rating action may be prompted by:
- Signs of the SO's lower propensity to support the Company or a transfer of control over the Company to an entity with a weaker credit quality than that of the SO.
Support: The final rating is equal to the credit rating of VEB.RF.
No outstanding issues have been rated.
The credit rating has been assigned under the national scale for the Russian Federation based on the Methodology for Credit Ratings Assignment to Leasing Companies Under the National Scale for the Russian Federation, the Methodology for Analyzing Member Company Relationships Within Corporate Groups, and the Key Concepts Used by the Analytical Credit Rating Agency Within the Scope of Its Rating Activities.
The credit rating of JSC VEB-leasing was published for the first time on April 18, 2018. 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 JSC VEB-leasing, information from publicly available sources, as well as ACRA’s own databases. The rating analysis was performed using IFRS consolidated statements of JSC VEB-leasing and statements of VEB-leasing composed in compliance with RAS. The credit rating is solicited, and JSC VEB-leasing participated in its assignment.
No material discrepancies between the provided data and the data officially disclosed by JSC VEB-leasing in its financial statements have been discovered.
ACRA provided additional services to JSC VEB-leasing. No conflicts of interest were discovered in the course of credit rating assignment.