ACRA assigns А+(RU) to State transport leasing company PJSC, outlook Stable

The credit rating of State transport leasing company PJSC (hereinafter, STLC or the Company) is based on a high likelihood of extraordinary support by state authorities. The standalone creditworthiness assessment (SCA) of the Company is satisfactory. Compared to other RF-based issuers, the Company’s creditworthiness is assessed as high.

STLC is a single-purpose company focused on finance and operating leasing services of transportation vehicles. As a fully state-owned company (its sole shareholder is the Russian Federation represented by the Ministry of Transport acting on behalf of the federal government), STLC is instrumental in implementation of the state transportation development program that includes certain anti-crisis measures.

In 2016, STLC held the leadership in terms of new business volume and was among top five leasing companies in Russia in terms of lease portfolio size.

Key rating assessment factors

High likelihood of extraordinary support by the federal government is attributable to the role STLC plays in the implementation of the state industrial and transportation development programs. The Company capital was formed through a series of capital injections by the state (over RUB 59 bln in total) used to finance transport vehicle leases granted to certain industries, which the government views as its priorities but whose growth is held back by high costs of corporate funding. In ACRA’s opinion, the likelihood of state support to STLC is high, taking into account growing importance of STLC in the transportation industry of Russia and potential further capital inflow from the government. At the same time, ACRA notes that in case of deteriorating financial standing of the Company, budgetary injections would be high enough but not burdensome for the national economy. The ACRA’s opinion about state support is expressed in that the final rating is four notches down against the rating of the Russian Federation.

Adequate business profile is based on the Company’s strong standing at the Russian leasing market (STLC is among top five leasing companies in Russia) and the vehicle lease segment. The factor assessment is limited by the business-specific high concentration of the Company’s lease portfolio on lessees (as of end-March 2017, ten largest clients comprised 77% of the total lease portfolio) and types of equipment (aviation and railway rolling stock comprised 78% of the portfolio).

Substantial loss absorption buffer is coupled with limited internal capital generation capacity. STLC has a sizable capital cushion due to step-by-step capital increases in 2015–2016 aimed at implementing the SSJ100 aircraft leasing program and other state-run projects. As of end-March 2017, the Company’s capital adequacy ratio (CAR) amounted to 25.5%. By end-2017, we expect more capital increases for the total of RUB 13.3 bln for the purposes of certain state-run programs. STLC’s internal capital generation capacity is assessed as low: in 2012–2016, the average capital generation ratio (ACGR) was 9 bps. ACRA notes that the purposes of STLC, as an agent established to implement the state transportation policy, do not require STLC to maintain high returns.

Low risk profile. As at end-September 2016, the Company’s lease portfolio contained a large share of lease agreements with payments 90+ days overdue: 16.4% including accounts receivable on terminated lease agreements. This year, due to settlement of overdue debts under a number of contracts, the total amount of overdue payments significantly decreased (4.2% at end-March 2017). However, the specifics of the Company’s strategy and risk management can potentially result in the increased credit risks. ACRA notes that certain large lessees do not have sufficient cash flow to timely make repayments on the long-term horizon, which may result in restructuring of relevant lease contracts. ACRA also notes that a moderately high share of funding attracted at floating interest rates (about 20% of total liabilities as of the beginning of June 2017) is not properly formalized in lease agreements.

Balanced funding structure. Company’s liabilities are well diversified: as at end-March 2017, they mainly included bank loans (25%), finance lease liabilities (16%), and bonds issued (52%). The Company’s dependence on certain lenders is moderate: payables due to the largest lender amounted to 16% of the total liabilities of STLC, while payables due to five largest lenders stood at 38%.

Satisfactory liquidity position. Under the ACRA base case scenario (and accounting for STLC’s plans to build up its leasing business), the Company shows positive cash balances (the current liquidity ratio is around 1–1.1) at the end of each quarter within the 12 to 24-month horizon. There is no need for significant refinancing of current liabilities throughout this period. Under the ACRA stress scenarios, the Company shows a moderate demand for attracting emergency liquidity (its current liquidity ratio is less than 1 in certain quarterly periods).

STLC plays a crucial supporting role for the Russian Ministry of Transport in terms of implementing a number of state-run programs in the transportation sector, which provides the Company with guaranteed demand for its services, mainly in niche segments. ACRA regards this factor as a significant competitive advantage, which is not reflected in the Company’s SCA. This translates into a higher creditworthiness, which in turn, results in one notch added to the SCA.

Key assumptions

  • No changes to the business model within the 12 to 18-month horizon;
  • Business growth rates ranging between 10% and 20% in 2017;
  • No changes in the shareholder structure;
  • CAR of at least 20% within the 12 to 18-month horizon;
  • Carrying out the scheduled charter capital increase through federal funding by year-end 2017.

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:

  • Increased systemic importance of the Company resulting from growing state funding and higher Company’s involvement in the state transportation policy.

A negative rating action may be prompted by:

  • Loss of controlling share in the Company by the Russian Federation, or a lower propensity of the controlling shareholder for support the Company;
  • Lower systemic importance of the Company for the national economy.

Rating components

  • Standalone creditworthiness assessment (SCA): bb.
  • Adjustment: 1 notch up against SCA.
  • Support: state support, 4 notches down against the RF.

Issue ratings

No outstanding issues have been rated.

Regulatory disclosure

The credit rating has been assigned under the national scale for the Russian Federation and is based on the Methodology for Credit Ratings Assignment to Leasing Companies Under the National Scale for the Russian Federation, the Methodology for Analyzing Relationships Between Rated Entities and the State, 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 State Transport Leasing Company PJSC for the first time. The credit rating and its outlook are expected to be revised within one year following the rating action (June 26, 2017).

The assigned credit rating is based on the data provided by State Transport Leasing Company PJSC, information from publicly available sources, as well as ACRA’s own databases. The rating analysis was performed using IFRS consolidated statements of STLC and statements of STLC composed in compliance with RAS. The credit rating is solicited, and STLC participated in its assignment.

No material discrepancies between the provided data and the data officially disclosed by STLC in its financial statements have been discovered.

ACRA provided no additional services to STLC. No conflicts of interest were discovered in the course of credit rating assignment.

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