The credit rating of RSHB Leasing LLC (hereinafter, RSHB Leasing, the LC, or the Company) is based on the high likelihood of extraordinary support being provided by the Group (hereinafter, the Supporting Entity, or the SE) coupled with a relatively low standalone creditworthiness, which takes into account, in particular, the Company’s limited market position due to its recent establishment, as well as low capitalization, a high concentration on the largest lessee and creditor, the high quality of the lease portfolio, and sufficiently balanced liquidity.
The Company began operating in 2020. The ultimate beneficiary of the LC is one of the largest banks in the Russian Federation (ACRA rating AA(RU), outlook Stable).
key assessment factors
High likelihood of extraordinary support from the SE. If necessary, the Supporting Entity can perform capital injections and provide financing required to support liquidity. ACRA’s very high assessment with regard to the level of support takes into account the following key conditions:
Strong capability of the SE to provide support thanks to a high level of creditworthiness;
Absence of any obstacles to the provision of support in the form of capital or liquidity at the present time;
Complete shareholder and operational control over the Company’s operations; the LC’s operations are currently highly integrated with the SE’s activities;
The Company’s bankruptcy would result in significant reputational risks for the SE.
At the same time, ACRA notes that RSHB Leasing currently does not form a significant share of the SE’s operating income.
The moderately low business profile assessment is primarily based on the limited market position, which is largely due to the Company’s infancy. The LC’s strategy focuses on rapid growth, mainly in the agricultural segment. RSHB Leasing plans to actively use the ultimate beneficiary’s wide branch network to increase the volume of its operations (including via cross sales), as well as to grow cross sales.
The portfolio of lessees is highly concentrated. At the same time, the liquidity of property according to the criteria of the Methodology for Assigning Credit Ratings to Leasing Companies on the National Scale for the Russian Federation is estimated as medium. In the Agency’s opinion, the concentration on the largest lessees will decrease as the Company grows. Concentration risks are partially offset by the possibility to increase regional concentration due to the fact that the SE is widely represented in the regions of the Russian Federation.
The quality of the Company’s corporate governance and risk management is assessed as satisfactory. The LC has a risk management system and detailed regulation of risk management procedures. The management of the Company’s operations is characterized by a high degree of control by the SE.
The low assessment of capital adequacy is based largely on the small size of available funds. The capital adequacy ratio (CAR) was just over 1% as of January 1, 2022, which is due to the specifics of the Company’s business model that uses the SE’s funds to finance operations, as well as the relatively short time since the LC was established. The Company’s ability to generate capital is assessed by ACRA as neutral taking into account the fact that it has only functioned for two full years. At the same time, the Agency notes that the Company demonstrated positive financial results in 2021 and H1 2022.
High quality lease portfolio. As of July 1, 2022, RSHB Leasing’s portfolio did not include any overdue or forcibly restructured receivables. ACRA notes the portfolio’s high concentration on the largest lessee, but expects this to decline as the LC’s strategy is implemented.
The concentrated funding structure is due to the high volume of funds raised from a single creditor amid a low share of internal funds in liabilities. At the same time, loans are the only source for creating the resource base, not counting own funds. ACRA notes that the risks of losing access to this source of funding are low.
Comfortable liquidity position. Proceeds from the lease portfolio cover payments for borrowed funds. Liquidity risks associated with a decrease in income from the current portfolio in a stress scenario are balanced by the possibility of additional funds from the SE.
The SE maintaining shareholder and operational control;
The Company maintaining its business model of the 12 to 18-month horizon.
potential outlook or rating change factors
The Stable outlook assumes that the rating will highly 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 the increase in its importance to the state.
A negative rating action may be prompted by:
Loss of shareholder control by the SE or lower importance of the Company for the SE and the shareholder’s readiness to provide support;
Significant deterioration of the Company’s standalone creditworthiness.
Standalone creditworthiness assessment (SCA): bb.
Support: credit rating of the SE minus two 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 RSHB Leasing LLC 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 RSHB Leasing LLC, information from publicly available sources, and ACRA’s own databases. The rating analysis was performed using the RAS financial statements of RSHB Leasing LLC. The credit rating is solicited, and RSHB Leasing LLC participated in its assignment.
Deviation from the Methodology for Assigning Credit Ratings to Leasing Companies on the National Scale for the Russian Federation: the risk profile assessment was carried out with a deviation from the methodology in order to take into account the negative impact of the very high concentration of credit risk.
In assigning the credit rating, ACRA used only information, the quality and reliability of which were, in ACRA’s opinion, appropriate and sufficient to apply the methodologies.
ACRA provided no additional services to RSHB Leasing LLC. No conflicts of interest were discovered in the course of credit rating assignment.