(The following statement was released by the rating agency)
Oct 02 - =============================================================================== Summary analysis -- TENEX-Service --------------------------------- 02-Oct-2012 =============================================================================== CREDIT RATING: BBB-/Stable/A-3 Country: Russia Primary SIC: Misc. business credit institutions =============================================================================== Credit Rating History: Local currency Foreign currency 20-Jan-2012 BBB-/A-3 BBB-/A-3 14-Jul-2011 BB+/B BB+/B =============================================================================== Rationale
The ratings on Russia-based leasing company reflect the risky operating environment in Russia; the limited business franchise of TENEX-Service (TENEX), owing to a very high concentration of business with its parent and group companies; and low profitability and capitalization.
These negative factors are somewhat mitigated by our view of the company as a strategically important subsidiary of state-owned Atomic Energy Power Corporation (JSC) (AtomEnergoProm; BBB/Stable/A-2; Russia national scale 'ruAAA') and our expectation of a high likelihood of extraordinary support from AtomEnergoProm, if required. In addition, the ratings take into account TENEX's protected market position; good asset quality, deriving almost entirely from the AtomEnergoProm group; and predictable and adequate liquidity.
TENEX is a fully owned subsidiary of AtomEnergoProm and the only leasing company in Russia that has a legal right to possess nuclear equipment (according to Presidential Act No. 556). Its assets totaled Russian ruble 17.99 billion (about $559 million) as of Dec. 31, 2011. The company mainly provides leasing services to subsidiaries of AtomEnergoProm, which together represented 76.4% of TENEX's net investments in leasing in July 2012 (74.6% as at year-end 2011).
Standard & Poor's classifies TENEX as a "strategically important" subsidiary of AtomEnergoProm, given its very close strategic, business, and operational integration with its parent, as well as our view of the parent's strong commitment to the company. We also view TENEX as a government-related entity, but with a "limited" link to and "limited" importance for the government.
We think that external support for TENEX is likely to come from the parent, rather than the government itself. Nevertheless, because AtomEnergoProm is a state-owned entity, we think that the government would likely support TENEX through AtomEnergoProm.
The long-term rating on TENEX is now one notch below that on AtomEnergoProm, incorporating four notches of uplift above its stand-alone credit profile, which we assess at 'b+'.
TENEX's leasing portfolio is performing well and shows no overdue lease payments. However, we note that the bulk of the portfolio comprises lease agreements with various group companies, resulting in very high concentration risks.
In our view, liquidity risks are limited because TENEX typically matches all of its liabilities with assets. All of TENEX's liabilities stem from AtomEnergoProm, which in our view protects TENEX's liquidity position and insulates it from an unexpected loss of confidence in the market.
TENEX's capitalization is currently satisfactory, in our view. Equity to assets stood at 8.2% as of Dec. 31, 2011. Our half-year 2012 estimate is closer to 7%, however. We understand that the parent is committed to TENEX's maintaining an equity-to-assets ratio of no less than 5% over the medium term.
In our view, TENEX's modest earning power is linked to its role as a captive leasing subsidiary for the AtomEnergoProm group. TENEX's return on average assets stood at a low 0.25% for 2011.
The stable outlook reflects our expectation that TENEX will continue to benefit from its high level of strategic and operational integration with AtomEnergoProm, and maintain the adequate quality of its lease portfolio.
We could lower the ratings if the company's ties to its parent weakened, for instance if the proportion of business with entities outside the AtomEnergoProm group materially increased, or if we took a negative rating action on the parent. We could also lower the ratings if TENEX's financial profile were to weaken, notably if the credit risk of the lease portfolio were to rise significantly through diversification beyond the nuclear sector without the necessary risk-management controls and processes in place, if reliance on the wholesale market for funding increases, or if its capitalization were to worsen materially.
Further positive rating actions would depend on a positive rating action AtomEnergoProm, accompanied by significant strengthening of TENEX's business position, and its increasing relative size. We view such a scenario as quite remote. Additionally, we could consider an increase in the group status to the AtomEnergoProm group to "highly strategically important" if there is a convincing growing dependency of AtomEnergoProm and other sister companies on TENEX's business.
Related Criteria And Research
-- Atomic Energy Power Corp. Short-Term Rating Raised To 'A-2' On Criteria Change; Affirmed At 'BBB/ruAAA'; Outlook Stable, July 19, 2012
-- Group Rating Methodology And Assumptions, November 9, 2011
-- Rating Government-Related Entities: Methodology And Assumptions, Dec. 9, 2010
-- Rating Finance Companies, March 18, 2004