The credit rating of Baltic Leasing LLC (hereinafter, Baltic Leasing, or the Company) has been upgraded due to a decline in the resource base reliance on the largest lenders, as well as in view of certain changes in approaches reflect in the Methodology for Assigning Credit Ratings to Leasing Companies on the National Scale for the Russian Federation.
The Company’s credit rating is based on the adequate assessments of its business profile, capital adequacy, and funding and liquidity, as well as the strong risk profile.
Baltic Leasing is one of the leading companies in Russia’s leasing market, specializing in leasing vehicles, special equipment and various types of equipment to small and medium-sized businesses. The Company’s branch network includes 80 branches in all federal districts of the Russian Federation and a head office in Saint Petersburg.
The Company’s ownership changed last year — the sale was completed in October 2023. Currently the group of companies held by the owner, besides Baltic Leasing, includes two other leasing companies.
KEY ASSESSMENT FACTORS
Adequate business profile assessment. ACRA notes the strong market positions, high level of expertise and considerable experience of the Company in its work with clients and suppliers in all its segments of presence. Baltic Leasing’s portfolio had grown by 22% as of September 30, 2024 compared to the indicator as of the start of the year, and amounted to RUB 289 bln. According to the results of the first half of this year and the forecast for the whole of 2024, the volume of new business is almost the same as in the last year. The Company’s equity, according to ACRA’s estimate, is fairly high and as of June 30, 2024 it was about RUB 24 bln.
ACRA notes the high regional diversification of the Company’s business. Most of the portfolio is made up of passenger and freight vehicles (51% as of June 30, 2024), while the construction and road construction equipment segments account for 17%; equipment represented in the portfolio is also diversified across different types. The weighted average liquidity of leased assets, as estimated per ACRA’s methodology, is fairly high.
The quality of corporate governance and risk management at the Company is assessed as rather high, while the validity of this assessment is confirmed by a historically low indicator of non-performing debt and stable business profitability.
Adequate capital adequacy assessment. ACRA notes the Company’s stable ability to generate profit — the averaged capital generation ratio (ACGR) calculated for the past five years stands at 213 bps. The capital adequacy ratio (CAR) was 13.4% as of the end of 6M 2024.
The strong risk profile assessment reflects the very low concentration of lease portfolio risks and the high quality of the portfolio. The share of the largest groups of customers was 4.5% as of June 30, 2024. At the end of H1 2024, the lease portfolio had practically no lease contracts with payments overdue for more than 90 days. The level of potential overdue debt, in the Agency’s opinion, stands at less than 1%. ACRA notes that the volume of enforced leases on the Company’s balance sheet, but this volume is still low. Market and operational risks are negligible.
The adequate funding assessment. The largest source of funding is bank loans, which accounted for 54% as of June 30, 2024. During the year, the Company halved the concentration of funding on the largest lender, which accounted for 18% at the end of H1 2024. The share of bond loans on the Company’s balance sheet is approximately 27%. With the increase in the Company’s assets during H2 of 2024, the shares of funding sources remained virtually unchanged. ACRA is of a highly opinion on the experience of Baltic Leasing in the securities market. The Company has extensive experience in bond issuance: currently, there are eight outstanding bond issues totaling RUB 56.4 bln.
The adequate funding assessment stems from the absence of the Company’s need to refinance its current obligations over a 24-month horizon and peak debt repayment periods, as well as its ability to cover obligations using revenues from current business, even in the event of a considerable decline in proceeds from new contracts. Under ACRA’s base case scenario (taking into account new business plans), the Company maintains a positive cash reserve at the end of each quarter over a 12–24 month horizon. The stress scenario also projects that there will be no cash shortage.
KEY ASSUMPTIONS
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Maintaining the current business model over the next 12 to 18 months;
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Share of non-performing and potential non-performing receivables in the lease portfolio at less than 5%;
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CAR no lower than 12% over the next 12 to 18 months.
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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The Company maintaining and strengthening its positions in the Russian leasing market while maintaining high profitability;
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Much higher CAR and capital generating capacity.
A negative rating action may be prompted by:
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Significant deterioration of the Company’s financial standing, including due to an outflow of liquidity to the companies of the new shareholder;
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Concentration of the Company’s resource base reaching or exceeding levels that were in place as of the change of ownership;
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Negative changes to the liquidity position;
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Deterioration of lease portfolio quality;
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Considerable decline in CAR and/or the Company’s ability to generate capital due to active growth of business, dividend payments, or higher cost of risk.
RATING COMPONENTS
SCA: аa-.
Adjustments: none.
Support: none.
ISSUE RATINGS
No outstanding issues have been rated.
REGULATORY DISCLOSURE
The credit rating has been assigned to Baltic 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 Baltic Leasing LLC was published by ACRA for the first time on January 11, 2024. 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 Baltic Leasing LLC, information from publicly available sources, and ACRA’s own databases. The rating analysis was performed using the IFRS and RAS financial statements of Baltic Leasing LLC. The credit rating is solicited and Baltic Leasing LLC 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 no additional services to Baltic Leasing LLC. No conflicts of interest were discovered in the course of credit rating assignment.
