The credit rating outlook for Alfa-Leasing Ltd. (hereinafter, Alfa-Leasing or the Company) has been changed from Stable to Positive following the change in outlook for the credit rating of the parent company (hereinafter, the Supporting Entity or the SE). Strong ties with it continue to determine ACRA’s opinion of the very high probability of provision of extraordinary support if necessary, which determines the Company’s final rating.
The standalone creditworthiness assessment (SCA) of Alfa-Leasing continues to be bbb+, despite the changes to the Methodology for Assigning Credit Ratings to Leasing Companies on the National Scale for the Russian Federation. ACRA expects Alfa-Leasing to significantly moderate its appetite for growth over the next 12–18 months against the backdrop of a restrictive monetary policy. Along with the potential for external support, this will help to somewhat balance the possible pressure on capital in the event of further seasoning of credit risks for the portfolio, which was aggressively expanded in previous years. At present, in accordance with new methodological approaches, the SCA is determined by an adequate business profile, capital and earnings position, liquidity, critical funding, and a satisfactory risk profile.
Alfa-Leasing is a universal leasing company focused on providing financial lease services for both large corporate customers and retail clients, including SMEs. The Company leases motor vehicles, railcars, special engineering equipment, and construction equipment. Alfa-Leasing operates in most federal districts of Russia, with its largest share of business in Moscow. The Supporting Entity is its sole shareholder.
KEY ASSESSMENT FACTORS
Very high support from the Supporting Entity. In ACRA’s opinion, the SE is interested in developing the Company’s business, and if necessary is ready to provide it with sufficient long-term and short-term financing, taking into account the following factors:
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Alfa-Leasing develops the leasing business of the group (hereinafter, the Group) that it is a member of together with the Supporting Entity, which is part of the Group’s strategy;
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The Company is wholly owned by the Supporting Entity, which exercises full strategic and operational control over it, including through determining corporate governance and risk management procedures and standards;
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The Company is almost fully financed via funds provided by the SE; the Supporting Entity’s creditworthiness is considerably higher than the Company’s standalone creditworthiness, the scope of the Company’s business is not a factor that is capable of limiting the effectiveness of potential support;
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The Company and the Group operate under a single brand, and therefore a possible default of the Company may lead to reputational risks for the Group.
In assessing support, ACRA also took into account the high level of dependence of Alfa-Leasing and the Supporting Entity on homogeneous risk factors.
ACRA set the Company’s credit rating two notches lower than the SE’s credit rating in accordance with the Methodology for Assigning Credit Ratings with External Support.
The adequate business profile assessment is based on the Company’s well-known brand and other competitive advantages for business that stem from being part of a large financial group (effective risk management procedures communicated by the Group, access to reliable funding and liquidity sources), and also takes into account the rated entity’s strong market positions. Alfa-Leasing is among the leading organizations in the motor truck, passenger vehicle, special engineering equipment and railcar lease market.
In the Agency’s opinion, the simultaneous presence of corporate and retail business (approximately 30% and 70% of the portfolio, respectively) contributes to the diversification of activities, and, in particular, underlies the relative diversity of types of leased assets in the portfolio. As of September 30, 2024, freight vehicles accounted for 31% of the portfolio, passenger vehicles held a 14% share, and railway equipment and special equipment formed 41% and 6%, respectively.
ACRA positively assesses management’s prudent approach to future business growth rates on the back of increasing volumes of equipment being seized and uncertainty in the external environment, including the possible impact of a tight monetary policy on the credit quality of current and new lessees. The expected neutral portfolio dynamics in 2025 after rapid growth by approximately 40%, 65%, and 57% in 2021, 2022, and 2023, respectively, and a more restrained increase (around 19%) in 9M 2024 will provide the Company with greater financial stability to mitigate possible external risks.
Adequate assessments of capital adequacy and profitability. Alfa-Leasing’s profitability has historically been maintained at consistently high levels (the average return on average equity for 2019–2023 was consistently around 30%; the averaged capital generation ratio (ACGR) for the same five-year period, taking into account the significant dividends paid in 2023, was 325 bps). However, a negative trend was observed over the first nine months of 2024. Return on average equity amounted to about 20% in annual terms — this decline was accompanied by both a reduction in the net interest margin (6.2% in annual terms vs. 8.5–9.5% in 2020–2023) against the backdrop of rising rates in the economy, and an increase in credit losses (the cost of risk for the portfolio amounted to an annualized 1.6%, while for 2019–2023 it averaged 0.7%). At the same time, ACRA believes that the current levels of profitability remain comfortable for maintaining the business, especially taking into account the Company’s restrained growth plans.
In view of asset growth, the capital adequacy ratio (CAR) as of the end of September 2024 declined to 9.2% compared to 9.9% as of mid-2023.
ACRA expects that in the absence of external shocks, as well as unforeseen losses and dividend payments, the CAR will gradually strengthen over the next 12 months at the same time as profitability metrics remaining at approximately the same levels.
Satisfactory risk profile assessment. When forming an opinion on the initial assessment within the framework of the new version of the methodology, the Agency proceeds from an analysis of the share of potential non-performing assets in the lease portfolio and concentration on the 10 largest lessees. The first metric, in ACRA’s opinion, does not exceed 5% of the portfolio, but there are risks of additional problematic positions seasoning in the future as net investments in leasing made during the period of active growth are amortized. Concentration on the 10 largest lessees is a noticeable 27% of the portfolio, which is due to the presence of relatively large corporate clients, mainly in the railway segment.
The risk profile assessment is also limited by the presence of a significant volume of leasing items seized from problem clients on the balance sheet — around 28% of equity as of the end of September 2024. The risks are somewhat mitigated by the fact that seized assets mainly consist of retail lease assets, which have an acceptable level of liquidity.
The funding assessment is critical according to ACRA’s methodology due to the concentration on a single creditor — the Supporting Entity. At the same time, this sort of funding structure is typical for many subsidiaries with a high level of integration into the activities of supporting enterprises and actually performing the functions of divisions for their parent organizations.
The adequate liquidity position stems from the acceptable projected current liquidity ratio on the 12-month horizon in ACRA’s base case scenario (in view of the Company’s plans to develop the leasing business), as well as from Alfa-Leasing’s moderate need for emergency liquidity as demonstrated by the Agency’s stress scenarios. The source of emergency liquidity provided by the Supporting Entity in the form of credit lines fully covers the Company’s urgent need for liquidity.
The stable nature of the relationship between the SE, which acts as a loyal creditor, and Alfa-Leasing, which holds a significant volume of unused credit lines from the SE, facilitates liquidity management. Financing of leasing transactions by the Supporting Entity is by default carried out on mirror terms corresponding to leasing agreements with the Company’s clients.
KEY ASSUMPTIONS
- Maintaining the close ties between the Group, which is predisposed to providing support.
POTENTIAL OUTLOOK OR RATING CHANGE FACTORS
The Positive outlook assumes that the credit rating will highly likely be upgraded within the 12 to 18-month horizon.
A positive rating action may be prompted by:
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Upgrade of the SE’s creditworthiness;
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Significant increase of the Company’s importance in terms of carrying out the SE’s strategy.
A negative rating action may be prompted by:
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Lower creditworthiness of the SE;
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Reduced assessment of the propensity of the SE to support the Company.
RATING COMPONENTS
SCA: bbb+.
Adjustments: none.
Support: Credit rating of the Supporting Entity minus two notches.
ISSUE RATINGS
Alfa-Leasing Ltd., series BO-02 (RU000A10A1N4), maturity date: November 9, 2027, issue volume: RUB 1 bln — АA-(RU).
Rationale. The issue represents senior unsecured debt of Alfa-Leasing. Due to the absence of structural or contractual subordination of the issue, ACRA regards it as equal to other existing and future unsecured and unsubordinated debt obligations of the Company in terms of priority. In accordance with ACRA’s methodology, the credit rating of the issue is equal to the credit rating of Alfa-Leasing and is set at AA-(RU).
REGULATORY DISCLOSURE
The credit ratings of Alfa-Leasing Ltd. and the series BO-02 (RU000A10A1N4) bond issue of Alfa-Leasing Ltd. 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, Methodology for Assigning Credit Ratings with External Support, 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 Financial Instruments under the National Scale for the Russian Federation was also applied to assign the credit rating to the above issue.
The credit ratings of Alfa-Leasing Ltd. and the series BO-02 (RU000A10A1N4) bond issue of Alfa-Leasing Ltd. were published by ACRA for the first time on April 18, 2018 and November 12, 2024, respectively. The credit rating of Alfa-Leasing Ltd. and its outlook and the credit rating of the series BO-02 (RU000A10A1N4) bond issue of Alfa-Leasing Ltd. 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 Alfa-Leasing Ltd., information from publicly available sources, and ACRA’s own databases. The rating analysis was performed using the IFRS and RAS financial statements of Alfa-Leasing Ltd. The credit ratings are solicited and Alfa-Leasing Ltd. participated in their assignment.
In assigning the credit ratings, ACRA used only information, the quality and reliability of which were, in ACRA’s opinion, appropriate and sufficient to apply the methodologies.
ACRA provided additional services to Alfa-Leasing Ltd. No conflicts of interest were discovered in the course of credit rating assignment.
