The credit rating of Akvilon-Leasing LLC (hereinafter, Akvilon-Leasing, or the Company) has been upgraded to reflect higher diversification of funding sources, while the lease portfolio quality and other rating scores have remained at their last year's levels.
The credit rating is based on the moderately weak business profile assessment, fairly strong capital adequacy assessment, and satisfactory risk profile, funding and liquidity assessments.
Akvilon-Leasing is a small leasing company that is based in Penza and has been operating in the leasing market for over 17 years. The Company is focused on leases of various types of equipment, road construction machines, and motor vehicles.
KEY ASSESSMENT FACTORS
Moderately weak business profile assessment. The Company has maintained a relatively small, in the context of the industry, lease portfolio. The average return on equity and return on assets over the past three years amounted to 20% and 4%, respectively.
Akvilon-Leasing’s business diversification is generally assessed as low. The Company is mainly present in its home region, which gives it advantages in working with clients when entering into agreements, assessing their solvency and resolving failures to pay, but makes the Company dependent on limited demand in the region. At the end of 2022, the single-name concentration was at the last year's level and remained rather high: the largest counterparty accounted for 21% of the lease portfolio, while the ten largest groups of customers accounted for 74%. The portfolio is diversified by type of equipment, including power equipment (23%), woodworking equipment (23%), metallurgical equipment (20%), and motor vehicles and road construction assets (15%) as of December 31, 2022.
Fairly strong capital adequacy assessment. The Company has maintained a high level of capital adequacy. According to the Company’s RAS financial statements, the capital adequacy ratio (CAR) was 22.7% as of December 31, 2022. The averaged capital generation ratio (ACGR), calculated for the past five years, is 277 bps, taking into account dividend payments made by the Company in this period.
Satisfactory risk profile assessment. ACRA notes the absence of overdue receivables and forcedly restructured contracts, as well as the low share of potentially non-performing leases (less than 5% of the Company's leasing portfolio) as of December 31, 2022. The high concentration of the lease portfolio continues to have a negative impact on the risk profile assessment. ACRA points out that the share of assets attributable to related parties did not change by December 31, 2022, noting the presence on the balance sheet of non-core assets in the form of issued loans and funds deposited with PJSC Kuznetsky Bank (ACRA rating BB-(RU), outlook Stable), although the volume of such loans is declining in 2023.
Satisfactory funding and liquidity assessment. The concentration on the largest lenders continued to decline in 2022, which had a positive effect on the Company's funding assessment and credit rating. As of December 31, 2022, the largest lender/five largest lenders accounted for 11%/41% of liabilities, respectively. Banks loans, which are the main source of funds for the Company, amounted to 55.6% of liabilities as of December 31, 2022. ACRA notes that the bond issue carried out in April 2023 is positive for the subsequent diversification of the funding structure.
The liquidity position is satisfactory because the current liquidity ratio for the next 12 to 24 months is projected at around 1.1 in ACRA’s base case scenario (taking into account plans to grow new business and existing contracts). In ACRA’s stress scenario, the Company showed an increased need for emergency liquidity in certain periods.
KEY ASSUMPTIONS
-
Maintaining the Company’s business model over the 12 to 18-month horizon.
-
CAR at no less than 15% over the 12 to 18-month horizon.
-
Less than 5% share of non-performing and potentially non-performing leases.
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:
-
Significant strengthening of the Company’s positions in the Russian leasing market;
-
Higher liquidity of leased assets and much lower concentration of the lease portfolio on major lessees and industries;
-
Significant decrease in the share of assets attributable to related-party transactions.
A negative rating action may be prompted by:
-
Significant deterioration of lease portfolio quality;
-
Significant decline of CAR and/or the Company’s ability to generate capital.
RATING COMPONENTS
Standalone creditworthiness assessment (SCA): bb+.
Adjustments: none.
Support: none.
ISSUE RATINGS
No outstanding issues have been rated.
REGULATORY DISCLOSURE
The credit rating has been assigned to Akvilon-Leasing LLC 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 Akvilon-Leasing LLC was published by ACRA for the first time on July 9, 2021. The credit rating of Akvilon-Leasing LLC 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 Akvilon-Leasing LLC, information from publicly available sources, and ACRA’s own databases. The rating analysis was performed using the IFRS financial statements and RAS financial statements of Akvilon-Leasing LLC. The credit rating is solicited, and Akvilon-Leasing LLC participated in its assignment.
The deviation from the Methodology for Assigning Credit Ratings to Leasing Companies on the National Scale for the Russian Federation: the risk profile has been assessed with a deviation from the applicable 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 Akvilon-Leasing LLC. No conflicts of interest were discovered in the course of credit rating assignment.
