Fitch Affirms VTB Leasing at 'BBB'; Outlook Negative
November 26, 2009 Fitch Ratings
Fitch Ratings-London/Moscow-25 November 2009: Fitch Ratings has today affirmed Russia-based VTB Leasing's (VTBL) Long-term Issuer Default Ratings (IDR) at 'BBB'. The Outlook is Negative. A list of rating actions is detailed at the end of this announcement.
The IDRs and Support rating reflect the high probability of support forthcoming, if required, from VTBL's sole shareholder, Russia's VTB Bank (VTB, rated 'BBB'; Negative Outlook).
VTBL is a leasing arm of VTB and is highly integrated within its parent. It is reliant on VTB for funding (representing 59% of liabilities at end-H109), business origination and infrastructure support.
In H109 the company's business stagnated with net investment in lease at USD2.9bn compared to USD3bn at end-2008. The lease book remained highly concentrated by lessee (the top 20 lessees represented 93% of the portfolio at end-H109) and by asset class (77% of the portfolio represented leases of rolling stocks and airplanes). Another source of risk is business originated in Ukraine (23% of the lease portfolio), VTBL's second-largest market after Russia.
Asset quality has significantly deteriorated since Q308, with lease payments overdue by more than 90 days accounting for 6.7% of the lease portfolio at end-H109 (end-2008: 2.2%). Given the significant concentration in the lease portfolio and that most lessees are in arrears on their lease payments, Fitch believes non-performing leases (net investment in lease overdue by more than 90 days) are, therefore, significantly higher than the reported figure. Most of such leases are undergoing restructuring during H209-Q110, while some will be recovered through termination of agreement with sale or re-leasing of equipment.
The company is highly leveraged with an equity/assets ratio of just 3.4% at end-H109. However, the equity/asset ratio should improve to 8.5% at end-2009, given VTB's planned equity injection of up to USD527m by end-2009, planned 19% growth of net investment in lease, and an increase of impairment reserves to around 10% of the lease portfolio (end-H109: 1.8%).
VTB-Leasing has been fully operational since 2002. At end-H109 its total assets were USD3.9bn, which made up 3.4% of VTB group's assets. The company provides services to its customers, located in Russia and CIS through eight regional offices and four foreign subsidiaries.
The rating actions are as follows:
Long-term foreign and local currency IDR affirmed at 'BBB'; Outlook Negative
Senior unsecured debt: Long-term rating affirmed at 'BBB'.
Short-term foreign and local currency IDRs affirmed at 'F3'
Support rating: affirmed at '2'
Company — VTB-Leasing
Full nameVTB Leasing