Press Releases / 18.12.2012
Press Release as of 18.12.2012
JSC Agency for Supporting Small and Medium-sized Businesses, regional microfinance institution of Leningrad region
CJSC AK&M Rating Agency rated OJSC Credit Guarantee Agency ‘A+’ as per the national scale, with a stable outlook.
The ‘A+’ rating indicates that the Company is a highly reliable borrower. Risk of a delay in meeting liabilities is insignificant.
The open joint-stock company Credit Guarantee Agency operating as the regional guarantee organization (fund) is the key element of the SME support infrastructure in Leningrad region (a subject of the Russian Federation). The Company’s core activity is providing guarantees for loans and other debt obligations of SME businesses registered in the region, where collateral coverage is insufficient.
The Company’s high rating results from a number of strong points, the key arguments being the improving balance sheets ratios and operational efficiency, the fairly high profitability, and the relatively low risks.
Since 2008, CGA’s equity capital has grown almost 4-fold (RUB 231.3 million as of 10/1/2012), assets have increased by 240%. Over the same period, the Company’s guarantees for the liabilities of the SME businesses across the region have increased more than 3-fold to RUB 213.4 million from 64.9 million. For 9 months 2012, the amount of guarantees increased by 16%. However, the average guarantee capital multiple (about 100%) puts the Company in a position to further expand its guarantee portfolio. The average amount of guarantee being RUB 1.43 million, the risks of defaults on the borrowers’ obligations arising from their respective credit contracts and financial leasing contracts are subsiding. The Company’s off-balance sheet liability portfolio is well diversified in terms of maturity; also, concentration of guarantees in individual sectors is nowhere above the comfortable level.
The Company’s main assets are municipal bonds and deposits made at Russia’s credit institutions ranked in the TOP 100 largest Russian banks, rated at least ‘A+’ as per the national scale by AK&M Rating Agency and picked through competitive tendering. This asset structure indicates high safety of the financial investments securing the Agency’s obligations. Also, the guarantee fund has a sufficient liquidity cushion to ensure the Company will meet its obligations even under tough pressure, should payments be demanded by credit institutions and leasing companies. The cash funds and resources which can be unconditionally drawn from the deposit accounts while preserving the Company’s revenue position constantly exceeds 8% of its off-balance sheet liabilities. As of 10/1/2012, this amount exceeded the main threshold benchmarks for the maximum amount of the current guarantee(s) (6.4%) and arrears on the loans and other funds provided to businesses outside of the financial sector in the region (7.3%).
Payments arising from the Company’s guarantees are relatively low. It will be noted that CGA recovers some of such expenses (32.5% of the total amount of payments) from the respective SME businesses through applicable subrogation (recourse) procedures. In terms of order 223 of Russia’s Ministry of Economic Development dated 4/23/2012, the fund’s balanced loss as of 10/1/2012 totaled RUB 8.68 million (1.1% of the total amount of guarantees) – which is far below the regulatory ceiling.
The Company’s retained earnings, despite recurring dividend payouts, is steadily growing (net profit for 9 months 2012 increased by 66% year-on-year and reached RUB 10.7 million). For the first time in the last 5 years, CGA’s operating income fully covered its business expenses, which is uncommon for Russian guarantee organizations. As of 10/1/2012, return on assets (on an annualized basis) was about 7.9%, comparable with the weighted average deposit interest rate for legal entities. The growing profit ensures higher equity (guarantee) capital with the constant amount of targeted financing.
The low risks assumed by CGA resulting from the good diversification of the guarantee portfolio (149 contracts in force as of 10/1/2012) and the appreciable quality of the risk management system also contribute to the Company’s high rating. Resorting to statistical simulation of flows of virtual payments due under the current guarantee contracts, AK&M analysts estimated the regulatory risk of the fund’s topping the loss ratio threshold at 7.4%. The risk of financial destabilization, i.e. having a balance sheet loss on the short-term horizon (using the same method) is estimated at 5.2%. Liquidity loss risk does not exceed 2.3%.
At the same time, the heavy build-up of guarantees related to the Company’s largest banking partner and the increasing share of loans receivable in its asset structure produce a slightly negative impact on the rating score of the guarantee fund.
CGA’s further development plans assume expanding the scope of activities and the pool of business partners (including insurance companies), improving the corporate governance, and adding value to assets (up to 20% as of the end of 2013) issuing additional shares as necessary, among other things.
The Company (full business name: Open Joint Stock Company Credit Guarantee Agency, short business name: OJSC CGA) was registered on August 14, 2003. The Company’s sole founder (shareholder) is the Government of Leningrad region represented by the Regional Committee for City Property Management. CGA granted the first guarantee on April 1, 2004. Over the period of its existence, the fund concluded more than 400 guarantee and surety agreements for a total of more than RUB 760 million, raising SME-targeted external investments of 7 rubles per each ruble of the public sector invested. As of 10/1/2012, CGA’s guarantee portfolio was RUB 213 million, the funds raised amounted to RUB 1,553 million. The Company’s auditor is UNIKON-AUDIT LLC.
This press release is based on the statement of assigning a credit rating to CGA.
The credit rating, along with any information and conclusions provided in this press release, only conveys our opinion on the Company's reliability and shall not be considered as advice on the purchase and sale of securities or the provision of loan facilities to the Company.
CJSC AK&M Rating Agency will not incur any responsibility for any interpretations, inferences and consequences related to the application of results of the rating estimation procedure by any third parties.
CJSC AK&M Rating Agency is a leading independent national rating agency engaged in rating activities since 1993.
CJSC AK&M Rating Agency is accredited by the Ministry of Finance of the Russian Federation (order no. 452 as of September 17, 2010).
AK&M Ratings are recognized by the Central Bank of Russia (for providing unsecured lending facilities – Regulation 323-P), Vnesheconombank (for granting subordinated loans) and SME Bank (for its program of lending to SME businesses), RUSNANO (when selecting banks to provide cash and settlement services to project and engineering companies implementing investment projects), and the MICEX (as a prerequisite for including bonds in the Corporate Bond Index / MICEX CBI and Municipal Bond Index / MICEX MBI calculation base and for listing bonds). Pursuant to an order of Russia's Government AK&M Ratings count for the recapitalization of banks. Besides, AK&M Rating Agency is recognized by AHML and accredited by SRO National Securities Market Association.
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