The credit rating of "Rosagroleasing" Company (hereinafter, Rosagroleasing, or the Company) is based on the high likelihood of extraordinary support being provided to the Company by the state, and fairly stable standalone creditworthiness, taking into account the functional significance of the Company for the agricultural sector of the Russian economy.
The Company was founded in 2001 and is wholly owned by the state represented by the Russian Ministry of Agriculture (hereinafter, the Supporting Entity, or the SE). The Company’s operations are focused modernizing the material and technical base of enterprises of the agro-industrial complex (AIC) of the Russian Federation via state subsidy programs. The Company does not have its own branch network; it provides financial leasing services throughout Russia via agent dealers. Rosagroleasing is the leader in terms of the volume of agricultural machinery leased in the country and one of the largest Russian leasing companies in terms of lease portfolio size.
key assessment factors
High likelihood of extraordinary support from government bodies. If necessary, the Supporting Entity can carry out capital injections and provide financing sufficient to support the Company’s liquidity. ACRA’s very high assessment of the extent of support takes into account the following:
Rosagroleasing is one of the key agents via which the state carries out programs to develop and support the AIC;
Rosagroleasing is a systemically important organization of the Russian economy, and also a systemically important organization of the AIC;
Complete shareholder and organizational control over the Company exercised by the SE; a board of directors has been created at Rosagroleasing, including by representatives of the Supporting Entity;
The Company regularly receives state support through budget mechanisms in the form of capital injections and subsidies. This support for the Company is stipulated, among other things, by a specially issued regulation.
The shareholding structure of the Company determines the high probability of reputational risks for the state in the event of the Company’s default. The risks of financial losses in the event that Rosagroleasing is unable to independently fulfill its obligations are assessed as moderate, taking into account the absolute scale of activities and the high share of equity capital in the Company’s liabilities. Given the Company’s structure of revenues and funding, ACRA assesses the degree of dependence of Rosagroleasing and the SE on homogenous risk factors as high.
ACRA’s opinion on the overall level of support for the Company from the state is expressed in setting its final rating on a par with the Russian Federation minus three notches.
Rosagroleasing’s stable business profile is determined by the strength of its market position due to the specifics of its activities and functional role. Government subsidy mechanisms contribute to the sustainability of the revenue base and have a positive impact on the Company’s financial results.
Rosagroleasing has an extensive client base, which ensures a relatively low concentration of lessees — as of October 1, 2021, the 10 largest clients accounted for around 15% of the lease portfolio, and the largest accounted for 4% of the portfolio. Diversification of the Company’s lease portfolio by types of equipment is low — about 85% of the portfolio consists of agricultural machinery, equipment, and livestock.
The quality of corporate governance and risk management of Rosagroleasing currently generally corresponds to the main risks of its activities. The Company has a multi-level risk management system and detailed regulation of risk management procedures, which were significantly improved after key management personnel were replaced in 2018–2019. The main prerequisites for the current strategy of the Company are assessed as adequate.
Significant supply of capital coupled with weak ability to generate capital. Rosagroleasing’s capital adequacy ratio (CAR) is high, amounting to 66% as of October 1, 2021. Due to the fast growth of the lease portfolio, the Company’s CAR is gradually decreasing, however, thanks to regular additional capitalization provided by the state, ACRA does not expect a significant deterioration in the indicator over the 12 to 18-month horizon.
The averaged capital generation ratio (ACGR) has been around zero over the past five years. The calculation of this indicator takes into account ACRA’s expert adjustment of the financial result for 2018 due to the additional creation of provisions for the impairment of leasing assets. In addition, the Company has demonstrated profitability of operations since 2019.
Satisfactory lease portfolio quality. As of October 1, 2021, the volume of problem and potentially problem debt in the Company’s current lease portfolio is moderate (the share of Stage 3 and POCI assets amount to around 8% of net leasing investments under IFRS). At the same time, the share of debts of lessees with payments overdue for 90+ days amounted to about 1% of the lease portfolio. Overall coverage of bad debts by IFRS reserves is assessed by ACRA as adequate. In addition, the Company’s balance sheet includes a significant volume of problem assets from terminated financial lease contracts (around 12.6% of net assets under IFRS), which are practically fully covered by reserves. These assets were mostly added to the balance sheet before 2018. Investments of funds in credit institutions amount to around 10% of assets, and ACRA assesses the credit quality of these organizations as relatively high. The volume of other balance sheet assets is comparatively low.
The stable funding structure stems from the dominating role of equity capital in the Company’s liabilities (66% as of October 1, 2021). In addition, starting from 2020, Rosagroleasing has placed bond issues, which amounted to around RUB 24 bln (27% of liabilities) as of October 1, 2021.
The comfortable liquidity position is due to the acceptable value of the projected current liquidity ratio in ACRA’s base case scenario (it exceeds 1.0 on the 12-month horizon). There is a moderate need for attracting additional liquidity in the stress scenario. Regular provision of capital by the shareholder has a positive impact on the Company’s liquidity. Furthermore, Rosagroleasing is able to obtain bank financing under open limits and has an additional supply of cash in bank deposits.
The state maintaining shareholder and operational control;
Maintaining the current business model over the 12 to 18-month horizon;
CAR above 15% over the 12 to 18-month horizon.
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:
- Improved assessment of support for the Company due to its increased importance for the state.
A negative rating action may be prompted by:
Loss of shareholder control by the Russian Federation or reduced importance of the Company for the state or the shareholder’s reduced propensity to support the Company;
Significant deterioration of the Company’s standalone creditworthiness.
Standalone creditworthiness assessment (SCA): bbb-.
Support: state support, on par with the RF minus 3 notches.
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 Assigning Credit Ratings to Leasing Companies on the National Scale for the Russian Federation, Methodology for Analyzing Rated Entities Associated with a State or a Group, 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 "Rosagroleasing" Company 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 data provided by "Rosagroleasing" Company, information from publicly available sources, and ACRA’s own databases. The rating analysis was performed using the RAS and IFRS financial statements of "Rosagroleasing" Company. The credit rating is solicited, and "Rosagroleasing" Company participated in its assignment.
In assigning the credit rating, ACRA used only information, the quality and reliability of which was, in ACRA’s opinion, appropriate and sufficient to apply the methodologies.
ACRA provided no additional services to "Rosagroleasing" Company. No conflicts of interest were discovered in the course of credit rating assignment.