The credit rating of LLC “ARENZA-PRO” (hereinafter, ARENZA-PRO, or the Company) is based on a moderate assessment of the business profile, relatively strong assessment of capital adequacy, and satisfactory assessments of the risk profile and funding and liquidity.

ARENZA-PRO (the Arenza brand) is a relatively small leasing company headquartered in Moscow. The Company specializes in leasing various types of equipment with a focus on SMEs. The Company operates in various regions of the country, with its main regions of presence as Moscow, the Moscow Region, and St. Petersburg, which together account for more than half of the portfolio.

KEY ASSESSMENT FACTORS

The moderate business profile assessment is primarily based on the scale of the Company’s operations. ARENZA-PRO is a relatively small organization (its portfolio volume was around RUB 1.17 bln as of the start of 2023 and around RUB 1.38 bln as of April 1, 2023). Although ARENZA-PRO was founded in 2016, in recent years the Company has recorded significant growth, with the portfolio growing by more than 4x in 2020–2022. Despite its generally limited competitive position in the leasing market, in certain business segments, such as equipment for catering companies, ARENZA-PRO is a leading player. The Company uses in-house IT solutions to drive its development, which allow it to increase the efficiency of work with clients.

Despite the fact that ARENZA-PRO coped relatively well with the challenges of 2020 and 2022, the business stability assessment is limited by the Company’s short history of active operations, commitment to a fast growth strategy amid conditions of strong (in ACRA’s opinion) competition, as well as the focus on individual areas of business that may be exposed to increased influence of operating environment risks. In addition, when assessing business stability, ACRA took into account expected changes to the funding structure in the form of increased dependence on borrowings.

When assessing concentration, ACRA took into account the low share of receivables from individual lessees (the share of receivables from the 10 largest lessees as of the end of 2022 did not exceed 15%). The Agency also notes that rather wide range of property that is leased out.  Most of the portfolio (35%) is formed by equipment for the food industry (including equipment for restaurants), while the share of other types of equipment does not exceed 15%. The final assessment of concentration is constrained by the medium, according to ACRA’s methodology, liquidity of leased property.

ACRA assesses the structure of the Company’s property as transparent. The main beneficiary owner of ARENZA-PRO is O. I. Senkov with an ownership stake of 71.88%, while a 25% stake belongs to a large institutional investor. O. I. Senkov is also the CEO of ARENZA-PRO. In the Agency’s opinion, the presence of a large institutional investor among the shareholders has a positive impact on the assessment of corporate governance, since it provides additional external control over the Company’s activities. At the same time, ACRA notes the high dependence of ARENZA-PRO’s ability to develop in line with its strategy on the decisions of the CEO, and therefore the key person risk is significant.

Relatively strong capital adequacy assessment. Despite high growth rates, ARENZA-PRO has so far limited the use of borrowed funds, which has allowed it to maintain high capital adequacy. According to the Company’s RAS reporting, the capital adequacy ratio (CAR) exceeded 40% as of December 31, 2022 (it was 35% as of April 1, 2023). The stability of the capital position also strengthens ARENZA-PRO’s ability to generate profit — the averaged capital generation ratio (ACGR) calculated for the past five years is 119 bps, with ARENZA-PRO only breaking even by 2020. ACRA notes that despite the deterioration in the operating environment, the Company was able to achieve positive financial results in 2020 and 2022.

Satisfactory risk profile assessment. In the Agency’s opinion, ARENZA-PRO, compared with some peers, has an increased level of exposure to lessees whose payment history includes payments overdue for 90+ days (around 11.5% of all due payments as of January 1, 2023). In addition, ACRA notes that there are payments due from lessees (approximately 4% of all due payments as of January 1, 2023), which were previously postponed, and which at one time or another were overdue for 1 to 90 days (the obligations for most of these payments are currently fulfilled on time). At the same time, ACRA notes that most of the overdue lease payments have been in default for more than a year, which indicates the relative stability of the portfolio quality in 2022.

Satisfactory funding and liquidity assessment. With the persistently high level of the Company’s self-financing, the amount of funds raised through bond issuances is increasing. After the second bond issue worth RUB 300 mln in Q1 2023, debt securities currently form over 40% of ARENZA-PRO’s liabilities. The Company’s focus on retail investors and an insignificant amount of funds borrowed from banks explain the low dependence on large lenders. ACRA believes that as part of its strategy, ARENZA-PRO will continue to focus on bond issues as the main source of funding, while the dependence on the funds of the largest lenders is not expected to increase.

When assessing liquidity, ACRA notes the Company’s strong need to raise funds to implement its fast growth strategy, which, in certain periods, may result in negative cash flow from operations. In addition, wider use of bond issues as the key fundraising instrument may lead to peaks in payments and an increase in the sensitivity of ARENZA-PRO to lease payments (especially during periods of economic stress). ACRA also takes into account ARENZA-PRO’s limited capabilities to raise emergency liquidity if necessary.

key assumptions

  • The Company pursuing the current business model over the 12 to 18-month horizon.

  • CAR of at least 15% in the next 12–18 months.

  • The share of non-performing and potentially non-performing assets in the leasing portfolio below 20%.

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 position in the Russian leasing market;

  • Lower share of non-performing and potential non-performing assets;

  • Lower share of the largest source of funds and persistently low concentration on the largest lenders.

A negative rating action may be prompted by:

–           Worse quality of the leasing portfolio;

–           Significantly lower CAR and/or the Company’s capital generation ability;

–           Higher dependence on the largest lenders and certain sources of funds.

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 LLC “ARENZA-PRO” under the national scale for the Russian Federation based on the Methodology for Assigning Credit Ratings to Leasing Companies under 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.

A credit rating has been assigned to LLC “ARENZA-PRO” 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 is based on data provided by LLC “ARENZA-PRO”, information from publicly available sources, and ACRA’s own databases. The rating analysis was performed using the RAS financial statements of LLC “ARENZA-PRO”. The credit rating is solicited and LLC “ARENZA-PRO” 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 additional services to LLC “ARENZA-PRO”. No conflicts of interest were discovered in the course of credit rating assignment.

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