The credit rating of DirectLeasing Ltd (hereinafter, DirectLeasing, or the Company) has been upgraded due to the improvement of the lease portfolio quality assessment. Overall, the rating is based on the moderately low assessment of the business profile, satisfactory capital adequacy assessment, medium risk profile assessment, as well as the satisfactory assessment of funding and liquidity.
DirectLeasing is a leasing company that has operated in the market for more than 16 years. The Company leases out passenger vehicles and trucks, buses, special-purpose machinery, and equipment. The Company’s clients include small and medium-sized enterprises, sole proprietors, and individuals, mainly in the Central Federal District (this region accounted for 75% of the portfolio as of June 30, 2022). The Company’s sole owner is V. O. Bochkov.
key assessment factors
Moderately low business profile assessment. In H1 2022, DirectLeasing continued to hold insignificant positions in terms of volume of new business and lease portfolio size among Russian leasing companies. At the same time, the Company has recorded fast growth that outstripped the growth of its nearest competitors. The volume of the portfolio grew by 53% over the 12 months preceding June 30, 2022 and recorded 81% growth in 2021. The largest shares of business are contributed by leasing of passenger vehicles and trucks (62% of the portfolio), road-building machinery (10%), buses and minibuses (7%), and metallurgy industry equipment (6%). Other leasing business accounts for comparatively small shares. ACRA assesses the liquidity of leased assets as above medium. Diversification of the current lease portfolio in terms of counterparties is medium. As of June 30, 2022, the largest client’s share in the lease portfolio was 8.1%, while the aggregate share of the 10 largest clients was 37%.
Satisfactory capital adequacy assessment. The Company has relatively low business profitability. The averaged capital generation ratio (ACGR) for the past five years amounts to around 70 bps. According to RAS reporting for 6M 2022, the capital adequacy ratio was 7.3%. The Company does not pay dividends in order to maintain its growth.
Medium-quality lease portfolio. As of June 30, 2022, contracts with problem and potentially problem debt amounted to 7.9% of expected revenues from leasing, which is considerably lower than the indicator as of June 30, 2021 (14.8%). At the same time, in ACRA’s opinion, high growth of the lease portfolio may lead to an increased share of problem assets in the future. However, the Agency notes that the Company does not have any significant market and operational risks.
Diversified funding structure. As of June 30, 2022, bond issues and other sources of debt financing (bank loans and borrowings) occupied roughly equal shares in the Company’s liabilities: 40% and 35% of the balance sheet total, respectively. As of the aforementioned date, the Company had four outstanding bonds issues worth a total of RUB 655 mln. The share of the largest lending bank was 13% of the balance sheet total, while the five largest lending banks accounted for 29%.
Satisfactory liquidity position. In the base case scenario, which takes into account plans to develop new business, the Company demonstrates positive cash flow at the end of every quarter over the next 12–24 months (the projected current liquidity ratio exceeds 1.0). In the stress scenario, a liquidity deficit is possible which may be overcome through prompt management of cash flows by adjusting the number of new lease contracts.
key assumptions
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Maintaining the current business model over the 12 to 18-month horizon;
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Capital adequacy ratio (CAR) under RAS at no less than 6.5% over the next 12 to 18-months;
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Share of problem and potential problem debt in the lease portfolio at less than 10%.
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:
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Strengthening of the Company’s positions in the Russian leasing market;
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Improved capital adequacy assessment;
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Lower share of problem and potential problem debt;
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Improved funding and liquidity position.
A negative rating action may be prompted by:
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Lower capital adequacy due to active growth of business or higher cost of risk;
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Deterioration of lease portfolio quality;
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Deterioration of funding and liquidity position.
rating components
Standalone creditworthiness assessment (SCA): bb.
Adjustments: none.
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 and the Key Concepts Used by the Analytical Credit Rating Agency within the Scope of Its Rating Activities.
The credit rating of DirectLeasing Ltd was published by ACRA for the first time on November 30, 2021. 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 DirectLeasing Ltd, information from publicly available sources, and ACRA’s own databases. The rating analysis was performed using the RAS financial statements of DirectLeasing Ltd. The credit rating is solicited and DirectLeasing Ltd participated in its assignment.
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 DirectLeasing Ltd. No conflicts of interest were discovered in the course of credit rating assignment.
