Training on Forecasting, April 7–8

ACRA affirms AAA(RU) to the Federal SME Corporation, outlook Stable

The credit rating of the Federal Corporation for the Development of Small and Medium Business (hereinafter, the Corporation) has been affirmed on par with the financial obligations of the Government of the Russian Federation, which is due to the very high likelihood of emergency support from the state, which stems from the state's decisive influence on the Corporation and the systemic importance of the Corporation for the Russian economy. ACRA also notes that the Corporation's business model is sustainable and the risks of its business are low.

The Federal SME Corporation is a development institution for small and medium-sized businesses (SMEs). It operates in accordance with Federal Law No. 209-FZ "On the development of small and medium-sized businesses in the Russian Federation." The Corporation's objective is to coordinate state support to SMEs. The Corporation participates in the financial support to SMEs, by issuing guarantees and sureties, participating in concessional lending through partner banks and its subsidiary SME Bank (A+(RU), outlook Stable), and financing leases through subsidiary leasing companies, etc.

Key rating assessment factors

Very high systemic importance. The Corporation is a key player in the implementation of national policies in support of small and medium-sized businesses, which implies uninterruptible activities of the Corporation under serious economic and financial stress. The Corporation coordinates the implementation of multiple state programs and targeted projects, provides financial support to SMEs, develops the national system of guarantee organizations. In this role, the Corporation is a unique state development institution, whose functionalities are not duplicated by other financial institutions in the Russian Federation and cannot be transferred without significant changes in legislation.

Very strong state influence. The Corporation is a state-owned entity: 70.59% of its shares belong to the Russian Federation, the rest shares belong to VEB.RF (ААА(RU), outlook Stable). Besides the shareholding control, the Russian Government also exercises operational control over the Corporation (the board of directors consists of members appointed by the state only) and determines its strategy.

ACRA notes that the Corporation's own capital is formed from the federal budget funds and expects that such situation will remain in the future. In addition, the government has set a mechanism for compensation of losses the Corporation may incur in the formation of reserves.

The financial profile reflects the specifics of the Corporation's role: the Corporation has no debts and has no long-term plans to borrow. The Corporation is not-for-profit entity. The main source of operating income includes interest on securities and deposits. The portfolio of securities (18.1% of assets as of December 31, 2018) includes federal loan bonds, while deposits (47.9% of assets as of December 31, 2018) are placed with financially strong banks. Equity comprises about 95% of balance sheet liabilities. ACRA notes that the standalone creditworthiness does not affect the rating of the Corporation, as the rating is based on the Methodology for Analyzing Relationships between Rated Entities and the State.

Key assumptions

  • The government will retain its shareholding and operating control over the Corporation;
  • The government will support the Corporation to extend its activities or cover losses;
  • The key risk metrics will be maintained at the current levels in case the scope of the Corporation's activities is expanded.

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 negative rating action may be prompted by:

  • A notable decline of the Corporation's systemic importance for the Russian economy;
  • A loss by the government of its shareholding and operating control over the Corporation.

Rating components

Standalone creditworthiness assessment (SCA): none.

Adjustments: none.

Support: on par with the Russian Federation.

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 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. Certain SCA factors were determined with the partial use of the Methodology for Credit Ratings Assignment to Banks and Bank Groups Under the National Scale for the Russian Federation.

For the first time, the credit rating assigned to the Federal SME Corporation was published on April 27, 2018. The credit rating and its outlook are expected to be revised within one year following the publication date of this press release.

The assigned credit rating is based on the data provided by the Federal SME Corporation, information from publicly available sources, as well as ACRA’s own databases. The rating analysis was performed using the consolidated IFRS statements of the Federal SME Corporation and the management reports of the Federal SME Corporation. The credit rating is solicited, and the Federal SME Corporation participated in its assignment.

No material discrepancies between the provided information and the data officially disclosed by the Federal SME Corporation in its financial statements have been discovered.

ACRA provided additional services to the Federal SME Corporation. No conflicts of interest were discovered in the course of credit rating assignment.

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