Fitch affirms Rosagroleasing's rating at 'BB+', outlook stable
LONDON/MOSCOW. June 17 (Interfax) - Fitch Ratings has affirmed JSC Rosagroleasing's (RAL) Long-term Issuer Default Rating (IDR) at 'BB+' with a Stable Outlook, the agency ssaid in a press release.
RAL's ratings are driven by potential state support. In assessing potential support, Fitch views positively: (i) RAL's 100% state ownership; (ii) the company's very low leverage, underpinned by repeated government equity injections; and (iii) the company's role (albeit somewhat limited) in the execution of state programmes to support the agriculture sector, Fitch said.
At the same time, the two-notch difference between the company's Long-term IDR and those of the Russian sovereign (BBB/Stable) reflect (i) limitations in RAL's policy role, given the small size of its balance sheet and the potential for state-owned banks (mainly Russian Agricultural Bank, RAB) to provide support to the agricultural sector; (ii) a history of weak corporate governance; and (iii) some uncertainty about the level of problematic leases and required impairment charges, with the potential for these to moderately increase the company's leverage.
RAL acts as an instrument of state support for the agriculture sector by providing leases with a low interest rate of 2.5%. At end-2012, this 'federal leasing' comprised roughly 90% of the total lease book and was financed solely by equity capital. The remaining 10% was 'commercial leasing' with rates closer to market rates, and funded by local and foreign banks. This has resulted in very low leverage: at end-2012, the debt-to-equity ratio was equal to 8%.
Fitch notes that although legally the federal and commercial parts of the leasing business are not separate, there is some risk that proceeds from federal leasing operations would not always be available for commercial debt service. However, the track record of debt service to date, currently low leverage and the fact that 64% of debt is sourced from RAB and is long-term mitigate this risk.
Asset quality is very weak, mainly due to failings in governance under previous management prior to 2009, but also because of the volatile performance of the agriculture industry, which is partially dependent on climate conditions. In its statutory accounts, RAL reported 24% of the lease book as overdue at end-2012, while restructured exposures made up a further 10%. Additionally, about half of advances to suppliers at the same date, dating from transactions completed under previous management, were overdue.
The company's low leverage (0.7x equity/assets ratio in statutory accounts at end-2012; which would probably be higher under IFRS), means that it can comfortably absorb further significant losses. Furthermore, Fitch believes credit underwriting has improved significantly since 2010, although the newly created lease book also remains exposed to the performance of the agricultural sector.
The ratings could be downgraded if (i) Russia's sovereign ratings were downgraded; (ii) there is a clear reduction in RAL's policy role; (iii) there is a marked increase in the company's leverage; or (iv) renewed failings in the company's governance.
There is very limited potential for an upgrade without a marked strengthening of its policy role and the support framework for the company. An upgrade of Russia's sovereign ratings would be unlikely to result in an upgrade of RAL.
The rating actions are as follows:
Long-term foreign currency IDR: affirmed at 'BB+'; Outlook Stable
Short-term foreign currency IDR affirmed at 'B'
National Long-term Rating: affirmed at 'AA(rus)', Outlook Stable
Support Rating: affirmed at '3'
Support Rating Floor: affirmed at 'BB+'