Press Releases / 05.07.2016
Press Release as of 05.07.2016
Nonprofit institution "Sevastopol Guarantee Fund'
AK&M Rating Agency assigned a 'B++' national scale guarantee institution rating, sub-level 3, to nonprofit institution "Sevastopol Guarantee Fund'. The outlook is stable.
The 'B++' rating indicates that nonprofit institution "Sevastopol Guarantee Fund" qualifies as a guarantee institution with a satisfactory degree of reliability. The risk of a delay in meeting obligations is moderate, the full or partial debt restructuring risk is insignificant. The rating assignment was based on the Credit Rating Methodology for Guarantee Institutions rev. February 25, 2016.
The credit rating is essentially supported by the fund's growing capitalization, business expansion and profitable operations.
In the period under review, Sevastopol Guarantee Fund improved its capitalization: in the fourth quarter of 2015, its equity capital increased by RUB 16.5 million as a result of cash inflows from the budgets of all levels. In particular, in October 2015, Sevastopol Guarantee Fund received subsidies in the amount of RUB 0.8 million from the regional budget, followed by the receipt of another RUB 15.7 million from the federal budget in December 2015. As a result, the Fund's capitalization increased more than twice to RUB 26.8 million as of April 1, 2016.
The increase in the amount of target financing in the fourth quarter of 2015 enabled the Fund to conclude 6 surety contracts for a total amount of RUB 9 million to secure loans for a total amount of RUB 21.7 million from partner banks. The amount of sureties provided by the Fund in Q1 2016 was RUB 13.2 million, the amount of loans secured by them reached RUB 32.4 million, exceeding the 2015 result.
The guarantee capital multiple is growing steadily reaching 94% as of April 1, 2016, an evidence of the Fund's growing efficiency in providing access of SME businesses to credit resources of partner banks.
One of the essential positive rating factors is the positive financial result of Sevastopol Guarantee Fund's operations. Net profit of the Fund for Q1 2016 was RUB 436 thousand exceeding the 2015 result more than twice.
In AK&M Rating Agency's view, the Fund's rating is constrained by poorly structured guarantee coverage and weak diversification of the surety portfolio in terms of industries.
As of June 17, 2016, the Fund placed RUB 23 million (87% of its total financial investments) on deposits with three credit institutions with ratings lower than 'A++' on the AK&M Rating Scale. Therefore, the Fund fails to meet the Ministry of Economic Development's recommendations for banks in which guarantee institutions invest. This, in our view, may impair the financial stability of Sevastopol Guarantee Fund.
Another point of concern is a large share of sureties provided to clients engaged in the retail sector (57%), whereas this sector accounts for a mere 13% of the total amount of lending in Sevastopol city. It should however be noted that almost half of the borrowers under the current surety contracts are sole proprietors for whom retail trade is the most typical activity. The correlation ratio between the amount of sureties provided by the Fund and the amount of loans provided trade-wise in the region is 47%.
Non-profit organization "Guarantee Fund for Support of Small and Medium-sized Businesses in Sevastopol City" was established on November 05, 2014 by the Government of Sevastopol represented by the Central Economic Development Administration in Sevastopol, subsequently renamed as the Department of Economy of Sevastopol. The core activity of the Fund, according to the charter, is providing sureties under SME financing contracts. The first surety was provided by the Fund on May 29, 2015. For the period since the commencement of operations to April 1, 2016, the organization concluded 20 surety agreements for a total amount of RUB 26.2 million, which enabled small and medium-sized businesses to borrow RUB 66.3 million in loans.
AK&M Rating Agency has assigned a guarantee institution rating to nonprofit organization Sevastopol Guarantee Fund for the first time. All rating action announcements are available on the akmrating.ru website.
The rating is valid until July 2016. AK&M Rating Agency may revise the rating and/or the outlook during this period if circumstances fundamentally influencing the guarantee institution's creditworthiness are revealed.
For estimation purposes, we completely rely on the reliability of information provided by the guarantee institution. The rationale for AK&M Rating Agency's judgment on the rating may include information acquired from other sources we deem to be reliable; however, the agency does not check the input data exhaustively and disclaims all responsibility for their possible errors.
This press release is based on the Statement of assignment of a guarantee institution rating to nonprofit organization Sevastopol Guarantee Fund and the Credit Rating Methodology for Guarantee Institutions rev. February 25, 2016.
The rating, along with any information and conclusions provided in this report, only conveys our opinion and shall not be construed as a recommendation to lend money resources to the Fund or to seek its guarantees and sureties.
AK&M Rating Agency shall not be held liable for any interpretations, inferences and consequences related to the application of results of the rating estimation procedure by any third parties.
AK&M Rating Agency is a leading independent national rating agency engaged in rating activities since 1993.
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