The credit rating of JSC “TALC leasing” (hereinafter, TALC leasing, or the Company) is based on its bb+ standalone creditworthiness assessment (SCA), which is determined by a moderate business profile, a strong capital adequacy buffer coupled with satisfactory capacity to generate capital, a concentrated funding profile, a satisfactory liquidity assessment, as well as a medium risk profile assessment. The likelihood of extraordinary support from the shareholder (hereinafter, the Supporting Entity, or the SE) has a positive impact on the rating, which is expressed in the addition of two notches to the SCA.
TALC leasing is a small universal leasing company that operates mainly in the Tyumen Region (ACRA rating AAA(RU), outlook Stable) and focuses on providing financial leasing of road construction and agricultural machinery and equipment, and passenger and cargo vehicles, including under government subsidy programs.
KEY ASSESSMENT FACTORS
Moderate business profile. TALC leasing is a relatively small regional leasing company that has stable but moderate profitability. Ties with local government bodies have a positive impact on business stability (projects that are important to the Tyumen Region account for at least 23% of the portfolio), which makes it easier for the Company to participate in projects and attract and retain clients.
TALC leasing will continue to increase the size of its lease portfolio at moderate rates in 2024 (no more than 20% of portfolio growth), maintaining, according to ACRA’s expectations, the emerging trend in the industry business structure. The Company’s activities have become more diversified in terms of business lines over the last 12 months — the share of road construction equipment increased from 19% to 28% of the lease portfolio, which allowed this segment to overtake the agricultural sector, the share of which, on the contrary, decreased from 45% a year earlier to 22%. The changes in the structure are dictated by the reduction of government agricultural programs, which, according to ACRA’s expectations, will also be relevant in the next 12 months.
There is a significant single-name concentration in the lease portfolio, however, there is a certain improvement here too. As of the end of September 2023, the 10 largest lessees accounted for around 42% of net investments in leasing, while the 30 largest accounted for 61%. In addition, ACRA positively assesses the Company’s work to widen its geography of presence in new regions since 2022, and expects this trend to continue, which will strengthen overall diversification of operations.
Adequate capital adequacy assessment. The Company’s comfortable loss absorption buffer stems from a consistently high capital adequacy ratio (CAR, which was about 22% according to calculations based on reporting data for 9M 2023). ACRA does not expect this indicator to decline significantly this year.
The capacity to self-sufficiently generate capital is assessed as satisfactory, with the averaged capital generation ratio (ACGR) amounting to around 66 bps for the past five full years. ACRA does not expect any significant change to profitability by the end of 2024. ACGR is also influenced by the Company’s payment of substantial dividends to its shareholder and the receipt of one-off income from selling non-core assets.
Good quality lease portfolio and substantial investment in non-core assets. ACRA assesses the share of non-performing debt at around 3% of the lease portfolio.
At the same time, the rating continues to be limited by significant (approximately 45–50% of capital) investments in non-core assets, including equity investments (around 40% of capital), which are, in particular, a source of increased market risk, accounts receivable under terminated leasing agreements, and other claims against legal entities.
Significant concentration of the funding structure. The main source of financing for the Company’s active operations are bank loans — around 70% of the balance sheet as of October 1, 2023. Another approximately 22% of balance sheet is formed by equity capital.
Concentration on individual counterparties continues to be heightened — the share of claims of the largest creditor was 22% of the balance sheet as of October 1, 2023, while the five largest accounted for 50%. ACRA positively assesses the Company’s plans to increase diversification in this area.
However, some difficulties in complying with covenants with regard to a number of major lenders may make it difficult to achieve these goals and develop the business over the next 12 months. According to ACRA’s information, creditor banks’ attitude to TALC leasing has not significantly worsened, which somewhat mitigates these risks.
Satisfactory liquidity position. Under the base case scenario, which takes into account the Company’s plans to grow its leasing business, the predicted current liquidity ratio over a horizon of up to 24 months exceeds 1.0. The stress scenario involves a moderate need for additional liquidity, which can be covered by unused bank limits. In addition, the specific nature of the Company’s activities allows for efficient cash flow management and adjustment of the volume of new business if necessary.
Limited extraordinary support from the Supporting Entity is expressed in the addition of two notches to the SCA. The assessment of the likelihood of support is carried out based on complete shareholder control and significant operational control exercised by the SE.
The Company’s default may entail significant reputational risks for the SE. The risks of financial losses for the shareholder, should the Company be unable to meet its commitments, are assessed as low. The Company actively participates in regional programs for developing and supporting the agricultural sector and SMEs, however, its functions are not strategically important or exclusive in its primary region of presence.
Previously, the shareholder periodically provided support to the Company via capital injections and in the form of securities of legal entities on the balance sheet.
key assumptions
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Maintaining the current business model and ownership structure;
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CAR calculated using local accounting standards at no lower than 15%.
potential outlook or rating change factors
The Stable outlook assumes that the credit rating will highly likely remain unchanged within the 12 to 18-month horizon.
A positive rating action may be prompted by:
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Significant decline of investments in non-core assets;
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Growth of the scale of operations and strengthening of the Company’s market position amid a decline of lease portfolio concentration;
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Substantial growth of funding diversification in terms of sources and creditors;
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Increased significance of the Company for the SE and better assessment of the likelihood of provision of extraordinary support.
A negative rating action may be prompted by:
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Loss of shareholder control by the SE or lower importance of the Company to the shareholder;
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Deterioration of lease portfolio quality;
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Growth of the share of the largest creditors in liabilities;
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Growth of non-core assets on the Company’s balance sheet;
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Significant decline of capital adequacy due to growth of business amid higher cost of risk and asset impairment;
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Deterioration of liquidity position.
rating components
SCA: bb+.
Adjustments: none.
Support: ACRA assumes that if necessary, the SE may provide extraordinary support to the Company in the form of capital and/or liquidity. Therefore, the Company’s credit rating is set two notches higher than the SCA taking into account support.
issue ratings
There are no outstanding issues.
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, 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.
The credit rating of JSC “TALC leasing” was published by ACRA for the first time on February 16, 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 JSC “TALC leasing”, information from publicly available sources, and ACRA’s own databases. The rating analysis was performed using the RAS financial statements of JSC “TALC leasing”. The credit rating is solicited and JSC “TALC leasing” 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 JSC “TALC leasing”. No conflicts of interest were discovered in the course of credit rating assignment.
