The 'A' rating indicates that BALTONEXIM Leasing NW LLC qualifies as a highly creditworthy leasing company. The risk of a failure to meet obligations in time is low, the full or partial debt restructuring risk is minimal. The rating assignment is based on the Credit Rating Methodology for Leasing Companies (Financial Assets) rev. January 23, 2014.

We appreciate the moderately low and shrinking debt burden, the sustained comfortable balance between the leasing and loan portfolios, the acceptable business diversification and profitability, the high reliability of insurance as the positive rating drivers for BALTONEXIM Leasing NW LLC.

The rated Company's loan debt has decreased to RUB 492 million from RUB 635 million at the start of 2014 (-23%). A of March 30, 2015, the debt burden multiple (net debt to EBITDA ratio) reached a historic low of 1.7x. Another positive argument is the sustained acceptable balance between the leasing and credit portfolios (their ratio staying in the 1.50-1.75 range for the last 3.5 years.

The company's lease portfolio is acceptably diversified. As of June 30, 2015, the largest lessee accounted for no more than 25%, the ten major clients for about half of the total leasing portfolio.

The business profitability of BALTONEXIM Leasing NW LLC is appreciably high. In the financial year ending on March 30, 2015, EBITDA margin was 45%, return on sales reached 16%, both indicators exceeding the average levels in the Russian corporate segment.

Most of the assets on finance lease are insured by leading Russian insurance companies. 80% of the total insurance amount is attributable to insurance operators with the highest reliability rating on the national rating scale.

At the same time, the rated Company's rating is constrained by the lower amount of business, the growing share of troubled assets, the insufficient insurance coverage for finance lease transactions.

Over the period since the start of 2014, the lease portfolio of BALTONEXIM Leasing NW LLC decreased by 33% to RUB 739 million. The portfolio contraction directly results from the shrinking volume of new business. In particular, the amount of new finance lease contracts concluded in the 12-month period ending on June 30, 2015 was RUB 267 million against RUB 376 million in 2014, RUB 734 million the year before.

Another point of concern is the growing share of troubled assets, with a higher amount of overdue lease payments. Over the period since January 1, 2013, the percentage of payments in arrears increased almost 9 times to 6.2% as of June 30, 2015, for the first time exceeding the comparable indicator of the Russian banking sector where overdue debt on loans to non-financial entities reached 5.8% as of June 1, 2015).

The high reliability of insurance protection is offset by its insufficient coverage. As of July 14, 2015, the insurance protection applied to 71% of the total number of effective lease contracts or 76% of their amount. Almost 90% of the uninsured contracts were concluded more than one year prior to this date.

Additional rating constraint is the extremely low capital adequacy caused by the Company's weak performance in terms of retained earnings and authorized capital. As of April 1, 2015, equity to assets ratio was a mere 1.6%.

BALTONEXIM Leasing NW LLC registered in July 2011 is a small-scale operator in terms of the lease portfolio. The Company is active in St. Petersburg, Leningrad region and other regions where its strategic partner BALTINVESTBANK is operating (Samara, Yekaterinburg, Moscow, etc.). The company specializes in the finance lease of trucks, equipment and special machinery. BALTONEXIM Leasing NW LLC ranks is among the top 100 leading Russian lease companies in terms of the lease portfolio (RUB 739 million as of June 30, 2015).

This press release is based on the Statement of assignment of a credit rating to BALTONEXIM Leasing NW LLC and the Credit Rating Methodology for Leasing Companies (Financial Assets).

AK&M Rating Agency has assigned a credit rating to BALTONEXIM Leasing Northwest LLC for the first time. All rating action announcements are available on the www.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 Company's creditworthiness are revealed.

For estimation purposes, we completely rely on the reliability of information provided by the Company. 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.

The rating, along with any information and conclusions provided in this press release, only conveys our opinion on the Company's creditworthiness and shall not be construed as a recommendation to purchase or sell securities, or to lend funds.

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. CJSC AK&M Rating Agency is accredited by the Ministry of Finance of the Russian Federation (order no. 452 as of September 17, 2010) and is on the Central Bank of Russia's Register of Accredited Rating Agencies.

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AK&M Rating Agency

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