The credit rating of “Element Leasing” LLC (hereinafter, Element Leasing, or the Company) is based on the adequate assessments of the business profile, capital adequacy, and risk profile, diversified funding structure, and the medium liquidity assessment.
Element Leasing is a leasing company focused on the financial lease of commercial-purpose vehicles, construction machinery and equipment mostly to small and medium-sized enterprises.
key ASSESSMENT factors
Adequate business profile assessment. ACRA notes the Company’s strong competitive advantages and significant operational experience in the truck leasing business, which allows it to maintain its leading position in this segment. In H1 2024, the Company’s lease portfolio grew by 12% and the volume of new business increased by 4% y-o-y. The relatively small amount of the Company’s equity (RUB 3.86 bln as of June 30, 2024) has a constraining effect on the business profile assessment. At the same time, the high level of liquidity of leased assets has a positive effect on the assessment: the share of cars and trucks accounts for 64.6% of the Company’s portfolio; buses and vans form another 10.3%. ACRA notes the still high diversification of the leasing portfolio by customer (the share of the largest customer does not exceed 1.5%, the share of the ten largest customers is 8.4%) and region. The quality of corporate governance and risk management is assessed as adequate.
Adequate assessment of capital adequacy. As of the end of H1 2024, the capital adequacy ratio (CAR) declined to 16.9% vs. 20.4% as of June 30, 2023. The averaged capital generation ratio (ACGR) stood at 239 bps for the last five years (2019 to 2023). Given the growth of funding costs amid the high key rate, ACRA expects a further decline of the ACGR in the next one or two years, though, according to the Agency’s estimates, the general assessment of capital adequacy will remain adequate.
Adequate risk profile assessment. ACRA notes that the Company has maintained the high quality of its lease portfolio. As of the end of H1 2024, the portfolio contained almost no lease contracts with payments overdue for 90+ days. In ACRA’s opinion, the share of potential problem receivables is less than 1%. Market and operational risks are insignificant. The risk profile assessment is negatively affected by the growing volume of leased assets enforced or being enforced by the Company. In H1 2024, the amount of such assets more than doubled and reached RUB 311 mln. Moreover, the Company’s balance sheet shows a significant amount of assets held for sale (RUB 1,064 mln as of June 30, 2024).
Strong funding assessment. The Company’s funding sources are diversified between bank loans and bonds, which amounted to 32% and 47% of liabilities, respectively, as of June 30, 2024. ACRA also notes the diversification by lender. As of June 30, 2024, the share of the largest lender was 10% of the Company’s liabilities, while the share of the five largest lenders was 32%.
Medium liquidity assessment. In ACRA’s base case scenario (taking into account the Company’s plans for new business growth), the Company retains a positive cash reserve in each calendar quarter over the next 12 to 24-months (the estimated liquidity ratio over the 24-month horizon is around 1.01). In the stress scenario, the Company shows a moderate shortage of cash, which, in the Agency’s opinion, is not critical and may be offset by managing expenses, selling the stock of lease assets, and regulating the number of newly concluded lease contracts.
KEY ASSUMPTIONS
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Maintaining the current business model within the 12 to 18-month horizon.
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CAR of at least 15% within the 12 to 18-month horizon.
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Share of problem and potential problem lessees in the lease portfolio below 5%.
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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Lower volume of lease assets enforced or being enforced by the Company;
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Better position in liquidity.
A negative rating action may be prompted by:
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Substantially lower CAR due to active business growth or higher cost of risk;
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Much lower capital generation capacity;
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Material deterioration of the quality of the lease portfolio;
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Lower diversification of funding;
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Deterioration of the liquidity position.
RATING COMPONENTS
Standalone creditworthiness assessment (SCA): a.
Adjustments: none.
Support: none.
issue ratings
“Element Leasing” LLC, series 001P-04 (RU000A105V74), maturity date: January 31, 2026, issue volume: RUB 2 bln — А(RU).
“Element Leasing” LLC, series 001P-05 (RU000A106KW4), maturity date: July 4, 2026, issue volume: RUB 3 bln — А(RU).
“Element Leasing” LLC, series 001P-06 (RU000A1071U9), maturity date: October 2, 2026, issue volume: RUB 2.5 bln — А(RU).
“Element Leasing” LLC, series 001P-07 (RU000A1080N5), maturity date: March 3, 2026, issue volume: RUB 2.5 bln — А(RU).
“Element Leasing” LLC, series 001P-08 (RU000A108C58), maturity date: April 11, 2027, issue volume: RUB 3.0 bln — А(RU).
“Element Leasing” LLC, series 001P-09 (RU000A1092S9), maturity date: July 10, 2027, issue volume: RUB 2.0 bln — А(RU).
Rationale. The issues are senior unsecured debt instruments of Element Leasing. Due to the absence of either structural or contractual subordination of the issues, ACRA regards them as equal to other existing and future unsecured and unsubordinated debt obligations of the Company in terms of priority. According to ACRA’s methodology, the recovery rate for unsecured debt belongs to category II; therefore, the credit rating of the above issues is equivalent to that of “Element Leasing” LLC, i.e. A(RU).
REGULATORY DISCLOSURE
The credit ratings have been assigned to “Element Leasing” LLC and the bond issues of “Element Leasing” LLC (RU000A105V74, RU000A106KW4, RU000A1071U9, RU000A1080N5, RU000A108C58, RU000A1092S9) 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 Methodology for Assigning Credit Ratings to Financial Instruments under the National Scale for the Russian Federation was also applied to assign credit ratings to the above issues.
The credit ratings of “Element Leasing” LLC and the bond issues of “Element Leasing” LLC (RU000A105V74, RU000A106KW4, RU000A1071U9, RU000A1080N5, RU000A108C58, RU000A1092S9) were published by ACRA for the first time on January 19, 2018, February 16, 2023, July 20, 2023, October 18, 2023, March 13, 2024, April 26, 2024, and July 24, 2024, respectively. The credit rating of “Element Leasing” LLC and its outlook and the credit ratings of the aforementioned bond issues are expected to be revised within one year following the publication date of this press release.
The credit ratings were assigned based on data provided by “Element Leasing” LLC, information from publicly available sources, and ACRA’s own databases. The rating analysis was performed using the consolidated IFRS financial statements of “Element Leasing” LLC and the RAS financial statements of “Element Leasing” LLC. The credit ratings are solicited and “Element Leasing” LLC participated in their assignment.
In assigning the credit ratings, 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 “Element Leasing” LLC. No conflicts of interest were discovered in the course of credit rating assignment.
