The credit rating of JSC «LC «Europlan» (hereinafter — Europlan, or the Company) is based on a fairly high standalone creditworthiness assessment (SCA) stemming from high business profile assessment, availability of a substantial loss absorption cushion and strong risk profile on the back of a comfortable funding and liquidity position. As compared to other issuers in the Russian Federation, the Company has a moderately high creditworthiness; however, certain sensitivity to adverse changes in commercial, financial, and economic conditions in Russia is in place.
Europlan is a specialized leasing company ranking among the leaders in the car-leasing segment in Russia with a large network covering all federal districts of the Russian Federation. The key focus of its activities is providing clients (primarily small and medium-sized enterprises) with financial leasing services with respect to passenger, cargo, and commercial vehicles as well as special vehicles. The largest beneficiaries of the Company are Said and Mikhail Gutserievs, who own 47.12% and 11.47% of shares, respectively, through PJSC “SAFMAR Financial investments” (hereinafter, the Supporting Institution); around 35% of shares are in free float.
Key rating assessment factors
High business profile assessment of Europlan is based on its well-recognized brand and consistent growth of business on the back of profitable activities even in crisis periods. By virtue of the Company’s retail activities, its leasing portfolio diversification is high (top 30 clients account for less than 9% of the leasing portfolio); at the same time, the concentration on leasing items is assessed as significant (passenger and cargo vehicles account for 93.5% of the portfolio), which, however, is offset by relatively high liquidity thereof. In addition, Company’s transactions with related parties are minimal. The quality of corporate governance and risk management system are assessed as adequate.
Europlan’s strong capital position is primarily based on availability of a substantial loss absorption buffer considering high capital adequacy ratio (CAR) at 23.8% as at September 30, 2017 as well as the Company’s strong capital generation capacity without any external injections (averaged capital generation ratio (ACGR) exceeded 300 bps in the last five years).
Strong risk profile assessment is possible primarily by virtue of high quality of the leasing portfolio where potentially problem debt, in ACRA’s opinion, is below 1.4% (based on analysis of top 30 lessees) including the share of NPL90+ not exceeding 0.1% of the portfolio. The industry concentration of the leasing portfolio is recognized as acceptable. There no investments into non-core assets booked on the Company’s balance sheet. Market and operational risks are negligible.
Funding structure of Europlan is sufficiently diversified considering availability of two large funding sources: issued debt securities (38% of liabilities) and loans raised from banks (32% of liabilities). At the same time, concentration of liabilities on the largest creditor is high (26%), and concentration on top five largest creditors is moderate (32%). Funding from related parties equals less than 8% of liabilities.
Comfortable liquidity position stems from Europlan’s capacity and ability (in view of its business specifics) to promptly respond to economic trends in terms of effective demand changes. At the same time, the projected current liquidity ratio in the next 24 months would equal 1.02 in ACRA’s base case scenario. In the above period, there are no needs in substantial refinancing of current liabilities. However, in its stress scenarios, ACRA assesses the Company’s needs in raising emergency liquidity as elevated.
Key assumptions
- No changes to the business model within the 12 to 18-month horizon;
- Business growth rates of 15%-20% in 2018-2019;
- CAR of at least 15% within the 12 to 18-month horizon;
Potential outlook or rating change factors
The Stable outlook assumes that the rating will most likely stay unchanged within the 12 to 18-month horizon.
A positive rating action may be prompted by:
- A substantial growth in financial stability of Company’s related parties;
- A decrease in Company’s needs to raise emergency liquidity;
- Lower resource base concentration on the largest creditor.
A negative rating action may be prompted by:
- A substantial deterioration in the financial standing of the Supporting Institution or related entities of the Company and the accompanying risk of liquidity outflow in their favor;
- A substantial CAR decrease due to active business growth or increase in the cost of risk;
- A significantly deteriorating quality of the leasing portfolio;
- Negative changes in liquidity position.
Rating components
Standalone creditworthiness assessment (SCA): а-.
Adjustments: no.
Support: no.
Issue ratings
No outstanding issues have been rated.
Regulatory disclosure
The credit rating has been assigned under the national scale for the Russian Federation and is based on the Methodology for Credit Ratings Assignment to Leasing Companies Under the National Scale for the Russian Federation, the Methodology for Analyzing Member Company Relationships within Corporate Groups, and the Key Concepts Used by the Analytical Credit Rating Agency Within the Scope of Its Rating Activities.
A credit rating has been assigned to JSC «LC «Europlan» for the first time. The credit rating and credit rating outlook are expected to be revised within one year following the rating action (December 26, 2017).
The assigned credit rating is based on the data provided by JSC «LC «Europlan», information from publicly available sources, as well as ACRA’s own databases. The rating analysis was performed using IFRS consolidated statements of JSC «LC «Europlan» and statements of JSC «LC «Europlan» composed in compliance with RAS. The credit rating is solicited, and JSC «LC «Europlan» participated in its assignment.
No material discrepancies between the provided data and the data officially disclosed by JSC «LC «Europlan» in its financial statements have been discovered.
ACRA provided no additional services to JSC «LC «Europlan». No conflicts of interest were discovered in the course of credit rating assignment.
