The credit rating of Volkswagen Group Finanz OOO (hereinafter, Volkswagen Group Finanz, VW Group Finanz, or the Company) is based on the very high likelihood of extraordinary support from the parent company — Volkswagen AG Group (hereinafter, Volkswagen Group, or the Group) — whose creditworthiness is considerably higher than that of the Company. The Company’s standalone creditworthiness assessment (SCA) is relatively low due to the moderate assessment of the business profile, weak capital adequacy and risk profile assessments, as well as satisfactory liquidity and funding.
VW Group Finanz specializes in leasing automobiles from the portfolio of the Volkswagen Group brand in the Russian Federation. The shareholders of the Company are Volkswagen Financial Services AG (hereinafter, the Supporting Organization, or the SO), which holds a 99.99% stake, and Norbert Adolf Dorn, who holds a 0.01% stake.
Key rating assessment factors
Very high likelihood of extraordinary support from the shareholder. In ACRA’s opinion, if necessary Volkswagen Group may provide the Company with sufficient short-term and long-term financing and capital injections via the Supporting Organization, which is part of the Group.
The final assessment of the country risk of the jurisdiction of presence of the foreign SO (Germany) relative to the country risk of Russia and the creditworthiness assessment of the SO compared to the SCA of VW Group Finanz are determined by ACRA as strong.
ACRA assesses the relationship between the Company and the Supporting Organization as very strong in view of:
- The legal connection (the Company is 100% affiliated with Volkswagen AG Group);
- The importance of the Russian market for the Group;
- The Group’s performance of leasing activities via the Company in Russia;
- Possible reputational risks in the event of bankruptcy of VW Group Finanz;
- High operational integration of VW Group Finanz and the companies of the Group, including with regard to corporate governance and risk management;
- Significant volume of financing provided to the Company by the SO (the SO made capital injections in 2015 and 2017).
Taking into account the above, the final rating of VW Group Finanz is on a par with the Russian Federation.
The moderate business profile assessment is based on the quality of corporate governance and risk management at an international group level, as well as Volkswagen’s brand and reputation as a producer and seller of high quality vehicles. Volkswagen Group Finanz occupies stable positions in the Russian leasing market’s car and truck segments by leasing out Volkswagen, Audi, ŠKODA and MAN vehicles, among others.
The lease portfolio grew by 54% in 2019. In 2019, the Company occupied a moderately high position in the car and truck leasing segment. The size of the lease portfolio in this segment was RUB 10.2 bln for cars and RUB 11.2 bln for trucks.
The assessment of the business profile is constrained by the Company’s unstable financial performance. In 2016–2017, the Company recorded a significant loss due to certain lessees’ fraudulent activities and failure to fulfil their obligations. 2019 was the first time in four years that the Company recorded a profit at the end of the reporting year.
The weak capital adequacy assessment is characterized by the low capital adequacy ratio (CAR), which stood at 6% for 2019, and the Company’s weak ability to generate capital — over the past four years, the averaged capital generation ratio (ACGR) has been negative: -113 bps. According to ACRA’s criteria, the combination of these ratios allows the capital adequacy of VW Group Finanz to be assessed as weak.
Weak risk profile assessment. The risk profile assessment is limited by the presence of problem assets in the Company’s lease portfolio. At the end of 2019, the share of contracts with payments overdue by 90 days or more had increased to 6.8% (3.1% in 2018). The share of potential problem debt, according to ACRA, is 14%. There are no non-core assets on the Company’s balance sheet. Market and operational risks are insignificant.
Satisfactory funding and liquidity assessment. The Company is financed using bank loans, with the share of bank financing amounting to 90% of the Company’s liabilities. The largest creditor accounts for 24% of the loans received by the Company, while the five largest creditors account for 75%. ACRA notes the high credit quality of lending banks — they are all banks that represent major foreign banks and financial groups in Russia. LLC VW Bank RUS (AAA(RU), outlook Stable), which is also part of Volkswagen Group, accounts for 11% of loans.
The comfortable liquidity position stems from the acceptable value of the projected current liquidity ratio for the next 12 months, which equals 1.01 in ACRA’s base case scenario (taking into account the Company’s business development plans), as well as the fact that VW Group Finanz demonstrates a low need for emergency liquidity over the next 24 months in ACRA’s stress scenarios.
- Maintaining the Company’s ownership structure;
- Maintaining the current business model of VW Group Finanz over 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 negative rating action may be prompted by:
- The Group’s loss of shareholder or operational control;
- Decline the Group’s interest in developing business in the Russian Federation through the sale of cars by leasing them.
Support: parity with the RF.
There are no outstanding issues.
The credit rating has been assigned to Volkswagen Group Finanz OOO under the national scale for the Russian Federation based on the Methodology for Assigning Credit Ratings to Leasing Companies under the National Scale for the Russian Federation, Methodology for Analyzing Relationships Between Rated Entities and Supporting Organizations Registered Outside the Russian Federation, 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 Volkswagen Group Finanz OOO for the first time. The credit rating of Volkswagen Group Finanz OOO 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 the data provided by Volkswagen Group Finanz OOO, information from publicly available sources, as well as ACRA’s own databases. The rating analysis was performed using the IFRS statements of Volkswagen Group Finanz OOO. The credit rating is solicited, and Volkswagen Group Finanz OOO participated in its assignment.
No material discrepancies between the provided data and the data officially disclosed by Volkswagen Group Finanz OOO in its financial statements have been discovered.
ACRA provided no additional services to Volkswagen Group Finanz OOO. No conflicts of interest were discovered in the course of credit rating assignment.