The credit rating of "Element Leasing" LLC (hereinafter, Element Leasing, or the Company) is based on the Company’s adequate business profile, strong capital adequacy assessment, strong risk profile, and a satisfactory funding and liquidity assessment.
Element Leasing is a specialized leasing company focused on the financial lease of means of transport, primarily trucks and minibuses. The ultimate beneficiary is T. Polyakova, who owns a 99.99% stake in the Company.
Key rating assessment factors
Adequate business profile assessment. ACRA notes strong competitive advantages and significant operational experience of the Company in the field of truck leasing, which allows it to maintain its position as a leader of this segment. The Company ranked 17th in terms of new business and 25th in terms of lease portfolio size as of September 30, 2019, while in the truck leasing segment it ranks 8th for both indicators. The lease portfolio is highly diversified by clients (the ten largest clients account for a 6% share) and geography of business. Due to this and also the primarily high liquidity of equipment in the commercial vehicle segment, the Company should be able to take a flexible approach to reduced demand for leasing. The quality of corporate governance and risk management is assessed as adequate.
Strong capital adequacy. For 9M 2019, the capital adequacy ratio (CAR) remained high at 15.4%, however it has fallen compared to early 2019. The average capital generation ratio (ACGR) has stood at 154 bps for the last five years. In accordance with ACRA’s criteria, the combination of these indicators allows the Company’s capital adequacy to be assessed as high.
The strong risk profile assessment is based mainly on the high quality lease portfolio. As of the end of September 2019, the share of lease contracts with payments overdue for 90+ days was 0.4%. In ACRA’s opinion, there is a low level of potential problem debt — less than 5%. Market and operational risks are insignificant.
Satisfactory funding and liquidity assessment. The funding structure of the Company is moderately diversified. Bonds account for 51% of the Company’s liabilities. Bank funding accounts for 25%, but is well diversified, with the largest creditor holding an 8% share of the Company’s liabilities.
The Company has a comfortable liquidity position. In ACRA’s base case scenario (taking into account the Company’s new business growth plans), the Company shows an insignificant positive cash reserve in each calendar quarter in the 12 to 24-month horizon (the estimated liquidity ratio is around 1.0). In ACRA’s stress scenario, the liquidity shortage is substantial, but the Company’s specialization allows it to manage cash flows by regulating the number of newly concluded lease contracts.
Key assumptions
- Maintaining the current business model within the 12 to 18-month horizon;
- CAR of at least 15% within the 12 to 18-month horizon;
- Share of lease contracts with overdue payments below 5%.
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:
- Considerably strengthened position in the leasing market;
- Growth in diversification of the lease portfolio by type of property.
A negative rating action may be prompted by:
- Substantial decrease in the CAR due to active business growth or an increase in risk cost;
- Lower capital generation capacity assessment;
- Substantial deterioration of the quality of the lease portfolio;
- Deterioration of the liquidity position.
Issue ratings
"Element Leasing" LLC, 001P-01 series (RU000A0ZZ0L6), maturity date: March 26, 2021, issue volume: RUB 5 bln — A-(RU).
"Element Leasing" LLC, 001P-02 series (RU000A100A41), maturity date: April 19, 2022, issue volume: RUB 5 bln — А-(RU).
Rationale. 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 repayment level of unsecured debt belongs to category I; therefore, the credit rating of the 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 bonds issued by "Element Leasing" LLC (ISIN RU000A0ZZ0L6, RU000A100А41) under the national scale for the Russian Federation based on the Methodology for Credit Ratings Assignment to Leasing Companies Under 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 Individual Issues of Financial Instruments Under the National Scale for the Russian Federation was also used to assign the credit rating to the issues listed above.
The credit ratings assigned to "Element Leasing" LLC and the bonds issued by "Element Leasing" LLC (ISIN RU000A0ZZ0L6, RU000A100А41) were published by ACRA for the first time on January 19, 2018, April 16, 2018, and April 23, 2019, respectively. The credit rating of "Element Leasing" LLC and its outlook and the credit ratings of the bonds issued by "Element Leasing" LLC (ISIN RU000A0ZZ0L6, RU000A100А41) are expected to be revised within one year following the publication date of this press release.
The credit ratings were assigned based on the data provided by "Element Leasing" LLC, information from publicly available sources, as well as ACRA’s own databases. The rating analysis was performed using the consolidated IFRS statements of "Element Leasing" LLC and the financial statements of "Element Leasing" LLC drawn up in compliance with RAS. The credit ratings are solicited, and "Element Leasing" LLC participated in their assignment.
No material discrepancies between the provided information and the data officially disclosed by "Element Leasing" LLC in its financial statements have been discovered.
ACRA provided no additional services to "Element Leasing" LLC. No conflicts of interest were discovered in the course of credit rating assignment.
