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Fitch Rates Russian Baltic Leasing 'B+'; Outlook Stable
September 18, 2014 / 1:52 PM / 3 years ago

Fitch Rates Russian Baltic Leasing 'B+'; Outlook Stable

(The following statement was released by the rating agency) MOSCOW/LONDON, September 18 (Fitch) Fitch Ratings has assigned Russia-based leasing company OJSC Baltic Leasing (BL) Long-term Issuer Default Ratings (IDRs) of 'B+'. The Outlooks are Stable. A full list of rating actions is at the end of this rating action commentary. KEY RATING DRIVERS: IDRS AND NATIONAL RATING BL's ratings reflect adequate asset quality metrics and healthy profitability, a strategic focus on retail business and comfortable liquidity position. However, the ratings are constrained by high concentration of funding, significant leverage and moderate liquidity of the lease book. The weaker economic outlook, including declining car sales in Russia, and increased pressure on margins due to rising funding costs are also moderately negative for the company's credit profile. BL is a mid-sized Russian leasing company with its head office in St. Petersburg. It is widely represented in almost all Russian regions through 63 branches and outlets. At end-2013, BL was the eighth-largest leasing company in Russia by total net investments in leases (NIL), but with a market share of only 2% due to the dominant positions of large state-owned companies. BL operates mostly through its 100% subsidiary Baltic Leasing LLC, which is a core business unit in the group (it made 85% of total group NIL at end-2013) and an issuer of bonds. Since May 2014, BL has been almost equally owned by five investors: ICT Group, IFD Capital, Tactics Group, Zenit Bank and a Russian businessman Mikhail Shishkhanov. Fitch deems that three of five investors (ICT, IFD Capital and Tactics group) are connected to Otkrytie; most funding is raised from Otkrytie-related banks. BL's lease book is diversified by borrower, industry and type of lease assets. The corporate lease book bears higher risk as potential foreclosures of equipment could be lengthy and need significant haircuts. Fitch views positively the change of strategic focus toward more liquid retail business (passenger and light commercial vehicles made 45% of the lease book at end-2013) although declining car sales in Russia could constrain BL's business growth. BL's leverage (defined as net debt/equity) was quite high at 6.5x at end-2013. Capitalisation has been improving due to robust internal capital generation (ROAE of 27% in 2013), which has outpaced the asset growth rate (20% for 2013). Fitch expects a reduction in profitability in 2014 and 2015. However, this should be matched by growth slowing down to 10%-15%, as anticipated by BL's management. At end-2013, BL was mainly funded by bank loans (92% of total liabilities), which are concentrated by name: 72% of bank loans at end-2013 were raised from banks affiliated to Otkrytie group, although this is down from 97% at end-2010. However, Fitch considers BL's liquidity position as adequate as (i) the repayment schedule is well-matched by asset amortisation; and (ii) BL has demonstrated its ability to deleverage if refinancing becomes problematic. In addition, some additional liquidity support from shareholders and/or roll-over of bank funding is possible, in Fitch's view. High profitability (ROAE of 27% and 39% in 2013 and 2012, respectively) is supported mainly by cost efficiency (cost/average assets of 4.6% in 2013). However, Fitch expects some deterioration in performance due to (i) the adverse economic environment in Russia; (ii) declining car sales, which could restrict growth of the high-yielding retail business; and (iii) narrowing capital markets, leading to more expensive funding. RATING SENSITIVITIES: IDRS AND NATIONAL RATING An upgrade would likely require a reduction in leverage, a significant decrease in dependence on Otkrytie-related funding (without a sharp increase in the cost of funding) and a positive track record in the development of retail lease operations. A significant increase in leverage or material credit losses exerting pressure on performance could be negative for the ratings. KEY RATING DRIVERS AND SENSITIVITIES: SENIOR UNSECURED DEBT RATING The senior debt rating for the RUB2bn domestic bonds due 2020 is aligned with the company's Long-term IDR. The rating actions are as follows: Baltic Leasing OJSC Long-Term foreign currency IDR assigned at 'B+'; Outlook Stable Long-Term local currency IDR assigned at 'B+'; Outlook Stable Short-Term foreign currency IDR assigned at 'B'; National Long-Term Rating assigned at 'A-(rus)'; Outlook Stable Baltic Leasing LLC Senior unsecured debt assigned at 'B+'/'A-(rus)'; Recovery Rating 'RR4' Contact: Primary Analyst Aslan Tavitov Associate Director +7 495 956 7065 Fitch Ratings CIS Limited 26 Valovaya Street Moscow 115054 Secondary Analyst Ruslan Bulatov Analyst +7 495 956 9982 Committee Chairperson James Watson Managing Director +7 495 956 6657 Media Relations: Elaine Bailey, London, Tel: +44 203 530 1153, Email:; Julia Belskaya von Tell, Moscow, Tel: +7 495 956 9908, Email: Additional information is available at Applicable criteria, 'Global Financial Institutions Rating Criteria', dated 31 January 2014, 'Finance and Leasing Companies Criteria', dated 11 December 2012, are available at Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria here Finance and Leasing Companies Criteria here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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