Fitch Ratings-London/Moscow-01 November 2018: Fitch Ratings has assigned Georgian Leasing Company Ltd (GLC) a Long-Term Issuer Default Rating (IDR) of ‘B+’ with Positive Outlook.
A full list of rating actions is at the end of this rating action commentary.
KEY RATING DRIVERS
IDRS AND SUPPORT RATING
GLC’s IDRs and Support Rating are driven by support from Bank of Georgia (BoG, BB-/Positive). Fitch’s view of probability of support is based on full ownership, close integration and a record of capital and funding support.
GLC operates solely in Georgia, the group’s domestic market. It provides financial leasing and focuses on corporate clientele of BoG as well as retail-type leasing to SME, microbusinesses and individuals.
GLC’s clients are often higher-risk borrowers when compared to BoG, which is mitigated by availability of a liquid collateral and higher yield.
GLC, which is 100%-owned by BoG, aligns its strategy and risk policies to those of its parent, although GLC’s management is independent when making operational decisions. GLC also benefits from access to some of BoG’s systems, including risk management and IT / back-office functions.
BoG has provided GLC with capital and funding support. The parent replenished GLC’s capital that had been eroded by earlier large credit and FX losses. For that purpose, BoG provided subordinated loans in 2016 which were then converted to equity in 2017 (GEL12.3 million). BoG also provides loans to GLC and facilitated bond placements. Group funding composed 36% of GLC’s total debt at end-2017.
GLC’s standalone creditworthiness is constrained by its monoline business model, vulnerable asset quality with a record of sizeable losses, relatively high risk appetite – particularly to credit and FX risks – and previous volatile performance. Credit-positive factors include GLC’s funding, which is balanced with assets by tenors, and benefitting from ordinary support from the BoG group.
Fitch expects GLC’s ratings to move in line with the parent’s IDR, which is currently on Positive Outlook.
A significant and sustained improvement of GLC’s performance and prospects, and a greater strategic alignment within the group would, in Fitch’s view, increase BoG’s propensity to support the company and could drive the equalisation of the ratings with the parent.
A material weakening of BoG’s propensity or ability to support GLC might result in a wider notching differential from the parent. This could be driven by GLC becoming much larger relative to BoG, a greater risk of regulatory restrictions for support, a waning of GLC’s strategic importance, or any depletion of BoG’s headroom (ie safety cushion) over regulatory required capital.
The rating actions are as follows:
• Long-Term Issuer Default Rating assigned at ‘B+’; Outlook Positive
• Local-Currency Long-Term Issuer Default Rating assigned at ‘B+’; Outlook Positive
• Short-Term Issuer Default Rating assigned at ‘B’
• Support Rating assigned at ‘4’