The credit rating of Akvilon-Leasing LLC (hereinafter, Akvilon-Leasing LLC, or the Company) is based on the moderately weak business profile assessment, fairly strong capital adequacy assessment, and satisfactory risk profile, funding and liquidity assessments.
Akvilon-Leasing is a small leasing company that is based in Penza and has operated in the leasing market for 15 years. The Company leases out various types of equipment and vehicles in the Volga Federal District. The largest beneficiaries of Akvilon-Leasing, who hold the largest stakes in the company are M. A. Dralin and Y. V. Yesyakova (44.98% each).
Key rating assessment factors
Moderately weak business profile assessment. The lease portfolio (RUB 1,007 mln) and volume of new business (RUB 482 mln) of Akvilon-Leasing, which are relatively small in the context of the industry, grew by 13% and 4%, respectively, in 2020. The Company’s reporting states that over the past three years, the average level of return on equity and assets amounted to about 20% and 4.2%, respectively.
Akvilon-Leasing’s business diversification is assessed as low. The Company is mainly present in its home region, which gives it advantages in working with clients when entering into agreements, assessing their solvency and resolving failures to pay, but makes the Company dependent on limited demand in the region. ACRA notes the high concentration of the business on certain clients and groups: the largest counterparty accounts for 28% of the lease portfolio, while the ten largest groups of clients account for 81%. As of December 31, 2020, leased equipment with low liquidity (according to ACRA’s methodology) accounted for 70% of the lease portfolio (34.4% was power equipment, 18% was metallurgical equipment, 17.3% was woodworking equipment). The share of assets with a high level of liquidity — passenger vehicles and food industry equipment — stood at 19% on the aforementioned date.
Fairly strong capital adequacy assessment. According to the Company’s RAS financial statements, the capital adequacy ratio (CAR) was 22% as of December 31, 2020. The averaged capital generation ratio (ACGC), calculated for the past five years, is high (305 bps), taking into account the dividend payments made by the Company in 2019 and 2020.
Satisfactory risk profile assessment. ACRA assesses the potential problem debt of the Company at less than 5% of the lease portfolio. As of December 31, 2020, Akvilon-Leasing did not have any overdue debt or forcedly restructured contracts. The high concentration of the lease portfolio has a negative impact on the assessment of the risk profile. ACRA also notes the Company’s operations with related parties (53% of equity), the presence on the balance sheet of non-core assets in the form of issued loans and funds deposited with PJSC Kuznetsky Bank (ACRA rating B+(RU), outlook Stable).
Satisfactory funding and liquidity assessment. The diversification of the funding structure is assessed as weak. As of December 31, 2020, liabilities were made up of bank loans (61%), advances paid by lessees (11%), and equity (22%). The largest creditor accounted for 17% of liabilities, and the five largest creditors accounted for 45% of liabilities. Akvilon-Leasing intends to improve its funding diversification before the end of 2021 by placing bonds and reducing its share of bank loans.
The liquidity position is satisfactory because the current liquidity ratio for the next 12 to 24 months is projected at around 1.1 in ACRA’s base case scenario (taking into account plans to grow new business and existing contracts). In ACRA’s stress scenario, the Company has increased need for emergency liquidity in certain periods.
- Maintaining the business model over the 12 to 18-month horizon;
- CAR at no less than 15% over the 12 to 18-month horizon;
- Less than 5% share of lease contracts with overdue payments.
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:
- Significant strengthening of the Company’s positions in the Russian leasing market;
- Higher liquidity of leased objects and much lower concentration of the lease portfolio on major lessees and sectors;
- Improved asset quality, including due to a substantial reduction of operations with related parties;
- Improved funding and liquidity position.
A negative rating action may be prompted by:
- Significant decline of CAR and/or the Company’s ability to generate capital;
- Significant deterioration of lease portfolio quality;
- Deterioration of the Company’s funding and/or liquidity position;
- Considerable increase in the share of issued loans on the Company’s balance sheet.
No outstanding issues have been rated.
The credit rating has been assigned 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 Akvilon-Leasing LLC 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 Akvilon-Leasing LLC information from publicly available sources, and ACRA’s own databases. The rating analysis was performed using the IFRS financial statements of Akvilon-Leasing LLC and the RAS financial statements of Akvilon-Leasing LLC. The credit rating is solicited, and Akvilon-Leasing LLC 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 Akvilon-Leasing LLC. No conflicts of interest were discovered in the course of credit rating assignment.