ACRA upgrades JSC «LC «Europlan» to A+(RU), outlook Stable, and its bonds to A+(RU)

The credit rating of JSC «LC «Europlan» (hereinafter — Europlan, or the Company) has been upgraded due to improved assessment of the funding and liquidity factor and the sustained strong assessment of the business profile, capital adequacy, and risk profile factors.

Europlan is a leading motor lease company operating a large branch network covering all federal districts of the Russian Federation. The Company is focused on financial lease services provided primarily to small and medium-sized enterprises with respect to passenger, cargo, commercial vehicles and construction machinery. The largest beneficiaries of the Company are members of the Gutseriev family, who jointly own 36.16% of shares through PJSC “SAFMAR Financial Investments” (hereinafter, the Supporting Institution); around 60% of shares are owned by other shareholders of the Supporting Institution.

Key rating assessment factors

The Company's strong business profile is based on high quality of the corporate governance and risk management sub-factors, which have contributed to the effective implementation of corporate strategy and the financial performance outpacing the peers during long period of time. The leasing portfolio diversification is high (top 30 clients account for less than 8% of the leasing portfolio); at the same time, the concentration on leased items (cars and trucks) is assessed as significant (passenger and cargo vehicles account for 91% of the portfolio), which, however, is offset by a high liquidity thereof. The Company’s transactions with related parties are minimal.

Europlan’s stable capital position is primarily based on availability of a substantial loss absorption buffer considering high capital adequacy ratio (CAR) at 17.6% as at September 30, 2019 as well as the Company’s strong capital generation capacity without any external injections (the averaged capital generation ratio (ACGR) exceeded 470 bps in the last five years, taking into account the dividend of RUB 1.9 bln paid out in 2019).

Strong risk profile assessment is possible primarily by virtue of high quality of the leasing portfolio where potentially problem debt, in ACRA’s opinion, equals 1.6% (based on analysis of top 30 lessees) including the share of NPL90+ not exceeding 0.03% of the portfolio. The industry concentration of the leasing portfolio is acceptable. There are no investments into non-core assets booked on the Company’s balance sheet. Market and operational risks are negligible.

The funding and liquidity factor has been revised upward due to Europlan’s actual low refinancing needs with respect to the current obligations in the next 24 months, which is confirmed by the capability to timely repay and service the existing debt even if there is no new business. At the same time, owing to its business specifics the Company can promptly respond to changes in economic trends that influence the effective demand for the leasing items offered. The Company’s top funding source is bank loans (52% of liabilities and equity); issued securities represent 22% of liabilities and equity. The funding assessment is constrained by high concentration of liabilities on both the largest creditor (40%) and top five creditors (47%), as well as somewhat elevated need of the Company in raising emergency liquidity in ACRA’s stress scenario. The latter, however, is offset by very high financial strength of the top creditor and availability of substantial credit facilities.

Key assumptions

  • No changes to the business model within the 12 to 18-month horizon;
  • Business growth rates of 15%-20% in 2020-2021;
  • CAR of at least 15% within the 12 to 18-month horizon.

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:

  • A substantial growth in financial stability of Company’s related parties;
  • Significantly lower resource base concentration on the largest source and/or creditor.

A negative rating action may be prompted by:

  • A substantial deterioration in the financial standing of the Supporting Institution or related entities of the Company and the accompanying risk of liquidity outflow in their favor;
  • A substantial CAR decrease due to active business growth, dividend payments, or increase in the cost of risk;
  • A significantly deteriorating quality of the leasing portfolio;
  • Negative changes in liquidity position.

Rating components

Standalone creditworthiness assessment (SCA): a+.

Adjustments: none.

Support: none.

Issue ratings

JSC «LC «Europlan», certified exchange-traded interest-bearing non-convertible unregistered bond subject to mandatory deposit, BO-08 series (ISIN RU000A0ZZBV2), maturity date: June 20, 2028, issue volume: RUB 5 bln — А+(RU).

JSC «LC «Europlan», certified exchange-traded interest-bearing non-convertible unregistered bond subject to mandatory deposit, BO-05 series (RU000A1004K1), maturity date: February 14, 2029, issue volume: RUB 3 bln — A+(RU).

JSC «LC «Europlan», certified exchange-traded interest-bearing non-convertible unregistered bond subject to mandatory deposit, BO-06 series (RU000A100DG5), maturity date: May 15, 2029, issue volume: RUB 3 bln — A+(RU).

JSC «LC «Europlan», certified exchange-traded interest-bearing non-convertible unregistered bond subject to mandatory deposit, BO-03 series (RU000A100W60), maturity date: September 20, 2029, issue volume: RUB 5 bln — A+(RU).

Rationale. The credit ratings of the issues have been upgraded from A(RU) to A+(RU) following the upgrade of the Company's rating. Due to the absence of either structural or contractual subordination of the issues, ACRA regards them pari passu with other existing and future unsecured and unsubordinated debt obligations of the Company. According to the ACRA methodology, the repayment level of unsecured debt belongs to category II; therefore, the credit ratings of the issues are equivalent to that of JSC «LC «Europlan», i.e. A+(RU).

Regulatory disclosure

The credit ratings assigned to JSC «LC «Europlan» and bonds (ISIN RU000A0ZZBV2, RU000A1004K1, RU000A100DG5, RU000A100W60) issued by JSC «LC «Europlan» under the national scale for the Russian Federation are based on the Methodology for Credit Ratings Assignment to Leasing Companies Under the National Scale for the Russian Federation, the Methodology for Analyzing Member Company Relationships within Corporate Groups, 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 under the National Scale for the Russian Federation was also applied to assign credit ratings to the above bond issues.

The credit ratings assigned to JSC «LC «Europlan» and bonds (ISIN RU000A0ZZBV2, RU000A1004K1, RU000A100DG5, RU000A100W60) issued by JSC «LC «Europlan» were first published by ACRA on December 28, 2017, July 03, 2018, February 27, 2019, May 28, 2019, October 2, 2019, respectively. The credit rating and credit rating outlook of JSC «LC «Europlan» and the credit ratings of the bonds (ISIN RU000A0ZZBV2, RU000A1004K1, RU000A100DG5, RU000A100W60) issued by JSC «LC «Europlan» are expected to be revised within one year following the publication date of this press release.

Disclosure of deviations from the approved methodologies. The upward revision of the funding and liquidity factor is based on the actual low needs of JSC «LC «Europlan» in refinancing its current obligations as well as very high financial strength of the largest creditor and availability of substantial credit facilities, which offset elevated concentration of liabilities of JSC «LC «Europlan» on the largest creditors.

The assigned credit ratings are based on the data provided by JSC «LC «Europlan», information from publicly available sources, as well as ACRA’s own databases. The rating analysis was performed using IFRS consolidated statements of JSC «LC «Europlan» and statements of JSC «LC «Europlan» composed in compliance with RAS. The credit ratings are solicited, and JSC «LC «Europlan» participated in their assignment.

No material discrepancies between the provided data and the data officially disclosed by JSC «LC «Europlan» in its financial statements have been discovered.

ACRA provided no additional services to JSC «LC «Europlan». No conflicts of interest were discovered in the course of credit rating assignment.

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