The credit rating assigned to Alfa-Leasing Ltd. (hereinafter, Alfa-Leasing, or the Company) is based on the moderate assessment of standalone creditworthiness assessment (SCA) and high probability of extraordinary support from JSC “ALFA-BANK” (АА(RU), outlook Stable), hereinafter, the Supporting Institution, or the SI). The Supporting Institution is the principal entity of Alfa Bank Group (hereinafter, the Group).
As compared to other issuers in the Russian Federation, the Company has a moderately high creditworthiness; however, there is some sensitivity to adverse changes in business, financial, and economic environment in Russia.
Alfa-Leasing is a universal leasing company working with large corporate clients and SMEs as well as developing operational lease services. The Company leases mainly railroad engineering equipment and motor vehicles as well as river and sea crafts, special engineering equipment and tools. Alfa-Leasing operates in six federal districts of Russia (with dominant presence in Moscow and St. Petersburg). JSC “ALFA-BANK” is the sole shareholder of the Company.
Key rating assessment factors
Adequate business profile assessment of Alfa-Leasing is driven by a well-recognized brand of the Company and consistent strengthening of its position in the lease services market. The lease portfolio concentration on the largest clients (top ten clients account for 64% of the portfolio) and leased items (the share of railroad engineering equipment is around two thirds of net lease investments) is fairly high; at the same time, the liquidity of leased items is assessed as overall medium, according to the ACRA methodology. Transactions with affiliates booked in the asset side of the balance sheet a minimal. Quality of corporate governance and risk management system are assessed as adequate.
Comfortable capital position is based on a substantial loss absorption cushion of the Company considering fairly high capital adequacy ratio (CAR) of 13.5% and a moderately high capacity of Alfa-Leasing to generate capital without external injections (the averaged capital generation ratio (ACGR) totaled around 200 bps for the last five years). At the same time, in view of business growth and possible dividend payouts, the Company’s CAR may decrease.
Adequate risk profile assessment is arrived at primarily by virtue of an acceptable level of problem debt in the lease portfolio, according to the ACRA methodology (it stood at 5.7% of the portfolio as at December 31, 2017 based on analyzing 30 largest groups of leaseholders and taking into account transactions restructured into loans) and almost non-existent NPL90+. Alfa-Leasing has no investments into securities and non-core assets in its balance sheet.
Stable liquidity position primarily stems from a sufficiently high projected current liquidity ratio on the 12-month horizon of 1.1x in ACRA’s base case scenario (in view of leasing business development plans of the Company) as well as from the Company’s low needs in emergency liquidity as demonstrated in ACRA stress scenarios and no substantial needs in refinancing current liabilities in the next 24 months.
Significant concentration of the resource base (94% of liabilities) on the SI, which is typical of the majority of subsidiaries that perform specific functions of a parent’s division. The bulk of the Company’s liabilities are interbank loans; however, the funding profile may change in the near term in view of business development.
High likelihood of extraordinary support from the parent company. In ACRA’s opinion, the SI is interested in growing the Company’s business and is willing to provide it with sufficient long-term and short-term financing, if needed, taking into account the following:
- Legal affiliation (a 100% stake of the SI in Alfa-Leasing);
- The Group doing its leasing business through the Company;
- Substantial operational integration between the Company and the SI, including at corporate governance and risk management, levels;
- Substantial (over 70% of liabilities) financing provided by the SI;
- Potentially high reputation risks for the Group in case of the Company’s bankruptcy.
In view of the strong assessment of the supporting institution’s category and the degree of affiliation with the SI, we add four notches up to the Company’s SCA.
Key assumptions
- No changes to the business model within the 12 to 18-month horizon;
- High rates of new business growth in 2018-2019 (at least 20% a year);
- CAR of at least 8% 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:
- Higher industry diversification of the lease portfolio and its lower concentration on the largest leaseholders;
- A substantial reduction of the largest creditor in the resource base.
A negative rating action may be prompted by:
- Decreasing capital adequacy or/and ACGR;
- A substantial deterioration of the financial status of the SI or any Company’s affiliates.
- Deterioration of the lease portfolio quality.
- Deteriorating liquidity position.
Rating components
Standalone creditworthiness assessment (SCA): bbb-.
Adjustments: none.
Support: group support, SCA plus four notches.
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 Alfa-Leasing Ltd. for the first time. The credit rating and its outlook are expected to be revised within one year following the rating action (April 17, 2018).
The assigned credit rating is based on the data provided by Alfa-Leasing Ltd., information from publicly available sources, as well as ACRA’s own databases. The rating analysis was performed using IFRS consolidated statements of Alfa-Leasing Ltd. and statements of Alfa-Leasing Ltd. composed in compliance with RAS. The credit rating is solicited, and Alfa-Leasing Ltd. participated in its assignment.
No material discrepancies between the provided data and the data officially disclosed by Alfa-Leasing Ltd. in its financial statements have been discovered.
ACRA provided no additional services to Alfa-Leasing Ltd. No conflicts of interest were discovered in the course of credit rating assignment.
