The credit rating of Pioneer Leasing Ltd. (hereinafter, the Company) has been downgraded to B+(RU) following the downgrade in the risk profile assessment due to an increase in the portfolio share of potentially problem lessees ACRA also notes increasing investments in non-core assets on the Company’s balance sheet. The credit rating is also affected by the moderately low business profile, very weak capital adequacy and satisfactory funding and liquidity assessments.
Pioneer Leasing Ltd. is a leasing company that has operated in the leasing market for more than 13 years. The Company leases out buses, passenger and cargo transport, special equipment, equipment, and real estate. The Company’s clients are SMEs, entrepreneurs, and individuals mainly in the Volga Federal District, which accounted for 62% of the Company’s portfolio as of March 31, 2022. Since 2016, the Company has been the parent company of JSC «NFK-Savings», a professional participant in the securities market. The group includes two other companies that were created for IT projects.
Key assessment factors
Moderately low business profile assessment. As of H1 2022, the Company held relatively low market positions in terms of the size of the leasing portfolio and new business. In 2021, the Company’s leasing portfolio grew by 38% with a significant growth in new business, while in H1 2022, the portfolio shrunk by 8% compared to the start of the year and amounted to RUB 1,534 bln, which is almost equal to the value seen in mid-2021. Portfolio diversification remains low, although its structure is shifting towards more liquid assets: as of March 31, 2022, the key segments of buses/minibuses and passenger/cargo vehicles occupied 73% and 11% of the portfolio, respectively (66% and 6% a year earlier). The Company's portfolio also includes printing equipment (8%) and real estate (5%).
The portfolio diversification by customer and region is continuing to improve, although the concentration of the portfolio is still significant. The largest customer accounts for 18% of the portfolio, and the five largest counterparties form 43% of the portfolio (compared to 21% and 63% a year earlier, respectively). The share of the key region in the portfolio has also declined — from 76% to 62%. ACRA assesses the quality of the Company’s corporate governance and risk management system as satisfactory. In addition to its main leasing operations, the Company performs management functions in relation to its subsidiaries. To optimize processes, the Company outsources a number of its functions to subsidiaries. In particular, JSC «NFK-Savings» assesses the Company’s risk and acts as the organizer and underwriter for the placement of the Company’s securities. The Company operates within the framework of its approved strategy, which in the medium and long terms assumes further growth and development of the Company.
The very weak capital adequacy assessment. In the same way as the calculations made by the Agency when assigning and revising the Company's credit rating in the past years, to determine the CAR, the Company’s capital was adjusted for the volume of investments in its subsidiaries: NFK-SI JSC and NFK-FinTech JSC (handed over from a subsidiary to the Company in ex 2021). Due to the business structure and balance sheets of NFK-SI JSC and NFK-FinTech JSC, these are essentially investments in intangible assets and far exceed the amount of internal funds on the Company’s balance sheet. The averaged capital generation ratio (ACGR) amounted to -265 bps for the last five years, taking into account adjustments for income and expenses that are atypical for the Company’s core business.
The satisfactory risk profile assessment. The risk profile assessment has degraded but remained in the same 'satisfactory' range. The decline is due to the growth of potentially problem debt. According to the analysis of the Company’s leasing portfolio, problem and potentially problem debt amounted to around 11% as of March 31, 2022 (8% a year earlier). The share of contracts with payments overdue for more than 90 days amounted to less than 1% of the leasing portfolio. The share of investments in JSC «NFK-Savings» on the Company’s balance sheet had decreased to 15% as of March 31, 2021 compared to 26% as on the same date in 2021, mostly due to a growth in assets associated with an increase of non-core investments on the balance sheet. ACRA notes that there are assets on the balance sheet subject to impairment risks as an additional risk factor that limits the risk profile assessment.
Satisfactory funding and liquidity assessment. The Company’s funding structure is moderately diversified. As of March 31, 2022, issued debt securities accounted for 61% of the Company’s liabilities (60% of as March 30, 2021).
The portfolio of debt securities includes bonds and promissory notes at a percentage ratio of approximately 60% to 40%. Currently, there are five bond issues in circulation equaling RUB 1,263 mln (placement of the fifth issue is under way). Securities are sold via companies associated with the rated entity. Bank loans account for 7% of the Company’s liabilities.
The satisfactory liquidity position is based on a moderately high forecast current liquidity ratio within the 12 to 24-month horizon, standing at more than 1.0 in ACRA’s base case scenario (taking into account plans for new business growth and existing contracts). In ACRA’s stress scenario, there is a need to attract emergency liquidity.
Maintaining the current business model within the 12 to 18-month horizon.
Share of leasing contracts with outstanding payments below 12.5%.
Potential outlook or rating change factors
The Stable outlook assumes that the rating may highly likely stay unchanged within the 12 to 18-month horizon.
A positive rating action may be prompted by:
Significantly strengthened position in the leasing market;
Significantly higher capital adequacy and ACGR;
Significant reduction of non-core assets on the balance sheet.
A negative rating action may be prompted by:
Deterioration in funding and/or liquidity position;
Problem debt exceeding 15% of the total leasing portfolio.
Pioneer Leasing Ltd., BO-P04 series (ISIN RU000A102LF6), maturity date: December 13, 2030, issue volume: RUB 350 mln — B+(RU).
Pioneer Leasing Ltd., 01 series (ISIN RU000A104V00), maturity date: April 15, 2032, issue volume: RUB 400 mln — B+(RU).
Rationale. The issues are senior unsecured debt instrument of the Company. 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. The recovery rate for the bond issue belongs to category II as per ACRA’s methodology. Therefore, the bond issue is assigned the credit rating of Pioneer Leasing Ltd.
The credit ratings of Pioneer Leasing Ltd. and the bond issues of Pioneer Leasing Ltd. (ISIN RU000A102LF6, RU000A104V00) have 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. The Methodology for Assigning Credit Ratings to Individual Issues of Financial Instruments on the National Scale for the Russian Federation was also applied to assign the credit rating to the above issue.
The credit ratings of Pioneer Leasing Ltd. and the bond issues of Pioneer Leasing Ltd. (ISIN RU000A102LF6, RU000A104V00) were published by ACRA for the first time on August 24, 2020, December 25, 2020, and June 07, 2022, respectively. The credit rating of Pioneer Leasing Ltd. and its outlook and the credit ratings of the bond issues of Pioneer Leasing Ltd. (ISIN RU000A102LF6, RU000A104V00) are expected to be revised within one year following the publication date of this press release.
The credit ratings were assigned based on data provided by Pioneer Leasing Ltd., information from publicly available sources, and ACRA’s own databases. The rating analysis was performed using the RAS statements of Pioneer Leasing Ltd. The credit ratings are solicited, and Pioneer Leasing Ltd. participated in their assignment.
In assigning the credit ratings, 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 Pioneer Leasing Ltd. No conflicts of interest were discovered in the course of credit rating assignment.