The credit rating of LLC «SIL» (hereinafter, SpecialInvestLeasing, or the Company) is based on the weak assessment of the business profile, satisfactory capital adequacy assessment, and the vulnerable funding and liquidity position. The high concentration of the lease portfolio has a substantial negative impact on the risk profile assessment.
SpecialInvestLeasing is a universal leasing company that operates primarily in the area of financial leasing of equipment and vehicles. The main share of the Company’s clients is from the oilfield services industry. The ultimate owner of SpecialInvestLeasing is A. A. Ilyaguev.
Key rating assessment factors
Weak business profile assessment. In 2020, the Company’s lease portfolio totaled RUB 2,310 mln, volume of new business — RUB 902 mln. The Company’s leasing business grew at an above-market rate in 2020. The volume of new business in the aforementioned period increased by 11%, while the lease portfolio expanded by 9%. As of September 30, 2020, oil production equipment accounted for 66% of the lease portfolio and equipment for the metallurgy industry accounted for 12%. According to ACRA’s methodology, the liquidity of assets provided under lease contracts is assessed as low. The Company’s client base is assessed as highly concentrated. As of September 30, 2020, the share of the largest group of related clients in the lease portfolio was around 58%, while the aggregate share of the ten largest groups of clients was 99%.
Satisfactory capital adequacy. According to RAS financial statements, over the past three years, the Company’s capital adequacy ratio (CAR) has grown from 10% as of December 31, 2017 to 17% as of December 31, 2020. However, the Company believes it may fall to around 11% by the end of 2021 as a result of significant growth in investments in leasing if its optimistic development scenario is carried out. The averaged capital generation ratio (ACGR) for the past five years was sufficiently high at around 200 bps. The final capital adequacy assessment was carried out taking into account a negative adjustment due to the significant risk of creation of reserves for the lease portfolio.
The high concentration of the lease portfolio has a considerable negative impact on the risk profile assessment. At the same time, the Company has almost no overdue debt, and the share of restructured claims in the lease portfolio is also extremely low. ACRA does not see any significant market risks, however, we note that the Company is very dependent on its owner’s business connections and decisions.
Vulnerable funding and liquidity position. The Company’s funding structure is diversified by types of instruments. Liabilities are mainly made up of advances from lessees, loans, and issue-grade debt securities (30%, 30%, and 23% of the balance sheet total, respectively, as of 9M 2020). The Company currently has two bond issues in circulation worth a total of RUB 254 mln. SpecialInvestLeasing plans to increase the share of fixed income instruments by carrying out new issues under a registered program totaling RUB 3 bln. At the same time, according to the Agency, the Company is characterized by a fairly high concentration of sources of borrowed funds and dependence on the largest creditors.
In the base case scenario, which takes into account plans to develop new business, the Company demonstrates a positive supply of funds at the end of each quarter for the next 12 to 24 months (the projected current liquidity ratio exceeds 1.0). At the same time, due to the high concentration of the lease portfolio, a significant liquidity deficit is possible in the stress scenario involving the absence of proceeds from the largest group of clients over a period of six months, which cannot be overcome through operational cash flow management or by using emergency sources of liquidity.
- Maintaining the current business plan over the 12 to 18-month horizon;
- CAR at no lower than 11% over the 12 to 18-month horizon;
- Share of overdue lease contracts at 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:
- Strengthening of the Company’s positions in the Russian leasing market;
- Improved funding and liquidity position.
A negative rating action may be prompted by:
- Substantial decline of CAR due to active growth of business or higher cost of risk;
- Downgrade of the Company’s capital generation assessment;
- Significant deterioration of lease portfolio quality.
No outstanding issues have been rated.
The credit rating has been assigned to LLC «SIL» 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.
A credit rating has been assigned to LLC «SIL» for the first time. 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 LLC «SIL», information from publicly available sources, and ACRA’s own databases. The rating analysis was performed using the IFRS financial statements and RAS financial statements of LLC «SIL». The credit rating is solicited, and LLC «SIL» participated in its assignment.
Disclosure of deviations from the approved methodologies: the assessment of the risk profile was carried out with a deviation from the methodology in order to take into account the negative influence of the high concentration of credit risk.
In assigning the credit rating, ACRA used only information, the quality and reliability of which was, in ACRA’s opinion, appropriate and sufficient to apply the methodologies.
ACRA provided no additional services to LLC «SIL». No conflicts of interest were discovered in the course of credit rating assignment.