The credit rating of Akvilon-Leasing LLC (hereinafter, Akvilon-Leasing, or the Company) has been upgraded due to the improvement of the risk profile assessment, which was the result of a considerable decline in the share of related-party assets, while the lease portfolio quality and other scores have remained at last year’s levels.
The Company’s credit rating is based on the moderately weak business profile assessment, fairly strong capital adequacy assessment, adequate risk profile assessment, and the satisfactory assessment of funding and liquidity.
Akvilon-Leasing is a small leasing company that is based in Penza and has been operating in the leasing market for over 18 years. The Company is focused on leasing 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. As of the end of 2023, it amounted to around RUB 1.5 bln, having increased by 40% compared to the start of the year. The average return on equity and return on assets over the past three years amounts 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 it dependent on limited demand in the region. At the end of 2023, concentration on individual clients and groups declined slightly year-on-year, but still remained rather high as per ACRA’s estimates — the largest counterparty accounted for 15.4% of the lease portfolio, while the ten largest groups of customers accounted for 65% (vs. 21% and 74%, respectively in 2022). The portfolio is diversified by types of equipment: as of December 31, 2023, metallurgical equipment and woodworking equipment accounted for 30% each, and power equipment accounted for 12%. Motor vehicles and road construction assets accounted for a 14% share of the portfolio as of that date.
Fairly strong capital adequacy assessment. The Company maintains a high level of capital adequacy. According to the Company’s RAS financial statements, the capital adequacy ratio (CAR) was 17.8% as of December 31, 2023. The averaged capital generation ratio (ACGR), calculated for the past five years, is 266 bps, taking into account dividend payments made by the Company in this period.
Adequate risk profile assessment. ACRA notes the absence of overdue receivables, forcedly restructured contracts, and potential non-performing leases as of December 31, 2023. The high concentration of the lease portfolio continues to have a negative impact on the risk profile assessment. Nevertheless, ACRA has improved the risk profile assessment, noting the repayment in 2023 of loans attributable to related parties, as well as the reduction of funds deposited with PJSC Kuznetsky Bank (ACRA rating BB(RU), outlook Positive).
Satisfactory funding and liquidity assessment. ACRA notes the further diversification of the funding structure, which was facilitated by the placement of bonds in 2023 and early 2024. Bank lending remains the main source of funding for the Company, but its share declined to 50% of liabilities as of December 31, 2023 (55% as of the same date in 2022). As of December 31, 2023, the largest lender and five largest lenders accounted for 15% and 38% of liabilities, respectively.
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 the Agency’s stress scenario, the Company may have an increased need for emergency liquidity in certain periods
KEY ASSUMPTIONS
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Maintaining the Company’s business model over the 12 to 18-month horizon;
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CAR at no less than 15% over the 12 to 18-month horizon;
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Less than 5% share of non-performing and potential 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:
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Significant strengthening of the Company’s positions in the Russian leasing market;
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Higher liquidity of leased assets and much lower concentration of the lease portfolio on major lessees and industries.
A negative rating action may be prompted by:
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Significant deterioration of lease portfolio quality;
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Significant decline of CAR and/or the Company’s ability to generate capital.
RATING COMPONENTS
Standalone creditworthiness assessment (SCA): bbb-.
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 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.
Deviations 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.
