The credit rating and its 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, over the next 12 to 18 months, continue its operations in support of the transport industry, while remaining a subsidiary of State Development Corporation “VEB.RF” (AAA(RU), outlook Stable; hereinafter, VEB.RF, the Group, the Supporting Entity, or the SE). VEB-leasing’s credit rating is equal to the Supporting Entity’s credit rating due to the very high likelihood of extraordinary support from the SE.
Despite ACRA’s expectations last year, the deal to transfer some assets and liabilities from the Company to JSC "GTLK" (AA-(RU), outlook Stable) was canceled. The Agency assumes that the liquidation of VEB-leasing is postponed for an indefinite period and is becoming a long-term objective for the Company. Consequently, all existing lease contracts will continue to be serviced, and there are no new lease contracts planned.
VEB-leasing is a specialized leasing company focused on financial and operational leasing services, primarily covering air, railroad, and water transport.
key assessment factors
In ACRA’s opinion, the degree of support from VEB.RF is very high. This reflects the very tight integration between the Company and the SE, the high reputational and associative ties between the companies, as well as the considerable involvement of VEB.RF in financing the operating activities of VEB-leasing.
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 VEB.RF; 2) both the Company and the SE share the same risk management and treasury system; 3) the number of the Company’s employees is minimal, so that the operational control over the Company is exercised by the SE. The Agency also takes into account the long history and multiple examples of the SE’s assistance to the Company both in the form of capital and liquidity.
Therefore, VEB-leasing’s rating is entirely determined by the very strong ties with the Supporting Entity. 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 introduction of sanctions against the Group will probably result in difficulties for the Company when working with foreign counterparties, including when repaying its liabilities to them. VEB-leasing plans to fulfill these obligations in accordance with Order of the President of the Russian Federal No. 95 dated March 5, 2022 “On the temporary procedure for fulfilling obligations to certain foreign creditors”.
ACRA assesses the current credit quality of the leasing portfolio as quite low. According to our estimates, the share of accumulated realized problem assets is about 40–45% of the portfolio. In the Agency’s opinion, amid the sanctions, additional pressure on the quality of assets over the next 12 to 18 months will come from the aviation segment, which accounts for around 40% of the Company’s lease portfolio. Besides the significant amount of impairment reserves created, the potential for external support still remains the most important factor mitigating possible credit losses. In the past, the Supporting Entity provided capital injections to VEB-leasing a number of times to form reserves and maintain capital adequacy. ACRA expects similar assistance to be provided in the future, if necessary.
key assumptions
- Maintained potential for external assistance from the Supporting Organization until VEB-leasing 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 VEB.RF’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 VEB.RF;
-
Deterioration of VEB.RF’s creditworthiness.
rating components
SCA: none.
Adjustments: none.
Support: The final rating is equal to the credit rating of VEB.RF.
issue ratings
No outstanding issues have been rated.
regulatory disclosure
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.
The credit rating of JSC VEB-leasing was published by ACRA 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 data provided by JSC VEB-leasing, information from publicly available sources, and ACRA’s own databases. The rating analysis was performed using the IFRS consolidated financial statements of JSC VEB-leasing and the financial statements of VEB-leasing drawn up in compliance with RAS. The credit rating is solicited, and JSC VEB-leasing 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 additional services to JSC VEB-leasing. No conflicts of interest were discovered in the course of credit rating assignment.
