The credit rating of “GEN LEASING” LLC (hereinafter, Gen Leasing, or the Company) reflects ACRA’s expectations that in the next 12–18 months the Company will continue to provide leasing services in the territory of the Crimean Peninsula, remaining a significant player at the local market and maintaining relatively strong capital adequacy and profitability metrics. As per ACRA’s methodology, the credit rating is based on the weak business profile, strong capital adequacy, adequate risk profile, critical funding, and the satisfactory liquidity position. Significant concentration on individual counterparties in terms of both assets and liabilities is likely to continue to have a constraining effect on the credit rating in 2025–2026.
Gen Leasing is a small leasing company that has been operating exclusively in the Crimean Peninsula (with a focus on Simferopol, the Bakhchisaray District, and Sevastopol) since September 2014. It leases equipment, special-purpose vehicles and trucks mainly for the agricultural and food industries, road construction and maintenance companies, as well as for the segment of extraction, processing and transportation of inert materials. ACRA does not expect fundamental changes to the business model in the next 12–18 months.
key assessment factors
The weak business profile assessment takes into account the relatively small size of Gen Leasing that determines high concentrations of its operations, including the focus on the key region of presence, and makes the Company vulnerable to potential changes in the competitive environment.
Given the current restrictive monetary policy, the Company, like many similar lessors operating in the region as well as throughout the country, will demonstrate smooth growth rates. ACRA expects that ongoing infrastructure development, including road construction, will support a certain demand for leased equipment from the Company’s customers operating in the Crimean Peninsula and a number of other regions. The Agency notes that the peninsula’s business is actively involved in relevant projects with the support of the budget of the Russian Federation.
Currently, the Company’s services are in demand but, on the other hand, the Company’s market positions may be affected by tougher competition from mainland financial institutions that expand their presence in the region.
The strong assessment of capitalization and profitability is based on the high capital adequacy ratio (CAR), which stood at 20% at the end of September 2024 vs. 18% a year earlier. The Agency does not expect any significant decrease in the CAR over the next 12–18 months, while assuming the Company’s dividend payments at 9–10% of net profits along with the current profitability levels and a limited growth of new business due to the strict monetary policy.
On average, Gen Leasing has demonstrated a comfortably strong financial performance: the averaged capital generation ratio (ACGR) amounted to 570 bps for 2019–2023. The results of the first nine months of 2024 give grounds to believe that the five-year average ACGR will remain above 450 bps by the end of last year. The Company’s return on equity amounted to about 24% in 2023 and 38% for 9M 2024. ACRA expects that the comfortable profitability will remain a positive rating factor in the next 18 months.
Adequate assessment of the risk profile. Concentrations on the largest lessees remain significant and continue to constrain the assessment: the ten largest counterparties account for approximately 46% of the portfolio of net investments in leasing assets, compared to about 52% a year earlier.
According to the Agency’s estimates, the share of non-performing assets is sustainably less than 5% of the Company’s lease portfolio. At the same time, ACRA notes that a significant part of business falls on clients who may expand their presence to those regions of the Russian Federation where credit risks are, in the Agency’s opinion, increased. Therefore, in the next 12–18 months, a certain likelihood of additional credit risks will remain as the portfolio seasons. This opinion is supported by the general growth of 1+ day overdue receivables, mostly due to technical reasons so far, to about 23% of the portfolio.
The still low penetration of credit and leasing services in the Crimean Peninsula, along with a persistent demand for these products, continues to help the Company select lessees of the highest quality. When making leasing decisions, Gen Leasing relies primarily on the estimated creditworthiness of its customers and only after this step analyzes the liquidity of the leasing asset, which, in ACRA’s opinion, favorably distinguishes the Company from many other representatives of the retail leasing industry.
Critical funding. The factor assessment is constrained by high concentrations. As of the end of September 2024, the five largest lenders formed the core of the Company’s liabilities, about 72% of its balance sheet; another 20% is the Company’s own funds.
Over the past two or three years, there have been major changes in the operating environment, which has allowed Gen Leasing to attract more reliable banks to finance its operations. The Agency noted this positive trend for the stability of the Company’s business a year ago by upgrading its credit rating. ACRA expects that as the Bank of Russia returns to a more lenient monetary policy, Gen Leasing will continue strengthening the diversification of its resource base.
Satisfactory liquidity. ACRA does not expect fundamental changes in the Company’s liquidity management over the next 12–18 months; during this period, the current liquidity ratio, according to the Agency’s base case scenario, is higher than 1.0x. In the stress scenario (which assumes cash flow from lessees falling by 20%), the need to raise emergency liquidity could be covered by a suspension of operations and utilization of available credit lines, including funds from large banking groups that once entered the region.
key assumptions
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Maintaining the current business model and market positions within the 12 to 18-month horizon.
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Expected further decline of the concentrations on the ten largest lessees stably below 45% of the portfolio along with its continuing smooth growth.
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CAR of at least 18%.
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No need in dividend payouts exceeding the base case expectations (for instance, such an occurrence took place in 2023, when Gen Leasing paid out about half of its profits).
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:
- Significant increase in the diversification, scale and stability of business.
A negative rating action may be prompted by:
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Worse financial sustainability of the largest lessees;
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Cease of the continuing trend of declining concentrations on the largest lessees below 45% of the portfolio;
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Significant decline of the CAR due to faster growth of business and/or emergence of credit costs and/or unforeseen dividend payouts;
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Destabilization of operations following the loss or weakening of key business partners;
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Much stronger competition as mainland financial institutions penetrate the region;
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Weaker liquidity position.
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 “GEN 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 “GEN LEASING” LLC was published by ACRA for the first time on March 2, 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 “GEN LEASING” LLC, information from publicly available sources, and ACRA’s own databases. The rating analysis was performed using the RAS financial statements of “GEN LEASING” LLC. The credit rating is solicited and “GEN 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 "GEN LEASING" LLC. No conflicts of interest were discovered in the course of credit rating assignment.
