The credit rating of BUSINESS ALLIANCE SC (hereinafter, BUSINESS ALLIANCE, or the Company) is based on the moderately weak assessment of its business profile, adequate capital adequacy and risk profile assessments, and the satisfactory funding and liquidity assessment.
BUSINESS ALLIANCE is a leasing company located in Moscow that has operated in the leasing market since 2006. The Company has experience of leasing various types of equipment, railroad and road construction equipment, and sea and river vessels. The Company has specialized in leasing special equipment for the housing and public utilities sector since 2020, and since 2023, BUSINESS ALLIANCE has carried out projects to lease special machinery and equipment to mine and transport coal, as well as metallurgy equipment and construction machinery.
The credit rating outlook has been changed to Positive to reflect ACRA’s opinion on a possible upgrade of the rating thanks to further growth of the lease portfolio and its diversification amid continued sufficient capitalization and high quality of the portfolio.
KEY ASSESSMENT FACTORS
The moderately weak business profile assessment takes into account volatility of the lease portfolio over the past five years and the continuing relatively low diversification of business compared to other leasing companies. At the same time, ACRA notes that the Company’s portfolio has grown and the range of its operations has broadened, which is reflected in growth of diversification by type of leased items, counterparties, and geography of presence.
The Company occupies a medium position in the Russian leasing market in terms of the volume of its lease portfolio. As of H1 2023, the lease portfolio is divided between special machinery for housing and public utilities companies (39%), metallurgy equipment (35%), and coal transportation equipment (22%), while in 2021, 88% was special machinery and equipment for housing and public utilities companies. The shares of the largest groups of counterparties in the portfolio stand at 35%, 21%, and 15% (as of December 31, 2021, the two largest counterparties accounted for 83% of the lease portfolio). In terms of geography, the main regions of presence are the Central, Ural, and Siberian Federal Districts.
BUSINESS ALLIANCE plans to continue developing in the corporate client segment by expanding its client base and portfolio structure by types of equipment. The Company views Russia’s economically strong regions as priority areas for maintaining a geographic presence.
Adequate capital adequacy assessment. The capital adequacy assessment has been lowered due to the capital adequacy ratio (CAR) declining to 10%, which in turn is the result of the portfolio growing faster than the Company’s capitalization.
The Company’s financial results are comfortably high — the averaged capital generation ratio calculated for the past five years is 246 bps.
Adequate risk profile assessment. ACRA notes the absence of overdue debt and involuntarily restructured contracts, as well as the Company’s almost zero level of potential problem debt as of June 30, 2023. The improvement of the assessment is due to the reduction of the fine for high concentration of the lease portfolio and dependence on the financial standing of the largest counterparties.
Satisfactory assessment of funding and liquidity. In 2023, BUSINESS ALLIANCE placed its debut issue of bonds, which improves the diversification of sources of funding, although its share in the structure of the balance sheet is low (around 9% of liabilities) and does not influence the funding assessment. The main source of financing for the Company’s operations continues to be bank loans, which accounted for 65% of liabilities (81% as of December 31, 2021). Around 10% of liabilities form equity capital. As of June 30, 2023, the share of claims of the largest creditor was about 20% of liabilities, and the five largest was 61% (24% and 73%, respectively as of December 31, 2021). By the end of 2023, the Company plans to make another bond issue, which will facilitate the creation of a more stable funding structure. Financial market volatility may hinder the success of the bond placement.
The satisfactory liquidity position stems from the fact that under ACRA’s base case scenario, the projected current liquidity ratio on a 12 to 24-month horizon exceeds 1.0 (taking into account plans to grow new business and existing contracts). There is a moderate need for additional liquidity under the stress scenario. The Company is able to raise bank financing under open limits and can rely on the owner’s funds if emergency support is necessary.
KEY ASSUMPTIONS
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Maintaining the Company’s business model over the 12 to 18-month horizon;
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CAR of no lower than 8% over the 12 to 18-month horizon;
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Share of problem and potential problem debt in the lease portfolio at below 5%.
POTENTIAL OUTLOOK OR RATING CHANGE FACTORS
The Positive outlook assumes that the rating will highly likely be upgraded within the 12 to 18-month horizon.
A positive rating action may be prompted by:
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Considerable strengthening of the Company’s market position coupled with maintained quality of the lease portfolio and profitability;
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Considerable increase of capitalization;
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Significant growth of diversification of funding in terms of sources and creditors.
A negative rating action may be prompted by:
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Deterioration of the financial standing of the largest lessees;
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Decline of the CAR and/or the Company’s ability to generate capital;
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Deterioration of the liquidity position.
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 BUSINESS ALLIANCE SC 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 BUSINESS ALLIANCE SC was published by ACRA for the first time on August 22, 2022. 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 BUSINESS ALLIANCE SC, information from publicly available sources, and ACRA’s own databases. The rating analysis was performed using the IFRS and RAS financial statements of BUSINESS ALLIANCE SC. The credit rating is solicited and BUSINESS ALLIANCE SC participated in its assignment.
Deviations from the Methodology for Assigning Credit Ratings to Leasing Companies on the National Scale for the Russian Federation: the risk profile assessment was performed with a deviation from the applied 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 additional services to BUSINESS ALLIANCE SC. No conflicts of interest were discovered in the course of credit rating assignment.