Fitch Ratings has taken a significant step concerning Uzbekistan's "Uzagroleasing" (UAL) by downgrading its Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) to 'RD' (Restricted Default) from 'B-'. In addition, Fitch has decided to withdraw the rating altogether. These actions follow the company's failure to make an interest payment on its local-currency notes within the 10-day grace period in September 2023.
Fitch's decision to withdraw UAL's ratings is rooted in commercial considerations. Fitch will discontinue offering ratings or analytical coverage for this entity.
Fitch has subsequently altered the company's Standalone Credit Profile (SCP) to 'rd' from 'ccc' under its Non-Bank Financial Institutions Rating Criteria. This adjustment comes in the wake of UAL's inability to meet its interest payment obligations within the prescribed grace period. Fitch no longer considers a support assessment applicable to UAL. This shift arises from the lowered SCP, and there are no indications of remedial actions from the state to counterbalance the deteriorating funding and liquidity profile assessment. This adjustment has led the SCP to become the primary driver of IDR, which has now been withdrawn.
Looking at UAL from an ESG perspective, its governance structure is limited due to its integration into the state system of subsidized agricultural production. This integration has led to the accumulation of losses, a weakening funding base, and precarious liquidity. The company faces the risk of negative profitability and poor asset quality due to state decisions aimed at offering concessional support to the agricultural sector, potentially resulting in a sudden increase in impaired leases and losses.
Additionally, UAL's financial transparency is questionable, characterized by late financial report submissions and incomplete, inconsistent, or missing disclosure of substantial information. This lack of timely and accurate financial disclosure may result in last-minute materialization of credit risks, undermining UAL's financial profile and funding availability.
Fitch classifies UAL as a GRE (Government-Related Entity) of Uzbekistan, primarily owned and controlled by the state. In cases of significant deterioration in the financial profile not covered by a financial support provider, Fitch withdraws the support assessment. This situation applies to UAL, as its IDR is now primarily driven by its SCP, which has been downgraded to 'rd' from 'ccc'.
In terms of liquidity and debt structure, the company's audited financials indicate that its debt increased to UZS 1.7 trillion (approximately $139.4mn) by the end of 2022, underpinned by a growing leasing portfolio. This debt comprises local preferential state loans, bonds, and bank loans.
UAL operates as a national leasing company and possessed total assets worth UZS 2bn (equivalent to $181mn) at the end of 2022.
From an ESG perspective, UAL has received an ESG Relevance Score of '5' for Management Strategy due to its limited autonomy from state decision-making, leading to losses, a weakened funding base, and feeble liquidity, all of which significantly impact its credit profile. UAL also received an ESG Relevance Score of '5' for Financial Transparency, mainly because of late and incomplete financial disclosure, which negatively affects its credit profile.
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