National Ratings reflect the creditworthiness of an issuer relative to the country's best credit and relative to peers operating within that country.
KEY RATING DRIVERS
In line with Fitch's Non-Bank Financial Institutions Rating Criteria, we assign AIL's ratings based on the higher of the company's standalone financial strength and probability of support from EG. At present, we do not rate EG and as such we are unable to assess the company's ability and willingness to provide extraordinary support to AIL.
We assess AIL's standalone credit profile at the lower end of rated Tunisian leasing and factoring companies, considering the concentration of its activities in Tunisia's volatile operating environment, its weak asset quality metrics and tight liquidity profile which have a high influence in our assessment.
In July 2021, Fitch downgraded Tunisia's Long-Term Foreign-Currency IDR to 'B-' with a Negative Outlook, reflecting heightened fiscal and external liquidity risks in the context of further delays in agreeing on a new programme with the IMF, which is necessary for access to most official creditors' budget support. Under its baseline scenario, Fitch projects a mild economic recovery in 2021, with a 3.6% growth following a sharp 8.8% contraction in 2020. The recent surge in Covid-19 infections and associated containment measures raise downside risks to the 2021 growth forecast.
Heightened sovereign risks pose significant operating environment challenges to Tunisian financial institutions, in our view. Given the prevailing economic conditions, Tunisian leasing and factoring companies' asset quality metrics further deteriorated at end-2020, with an average impaired and non-performing loans ratio of 12.5% (end-2019:11.5%). Funding and liquidity conditions are particularly challenging for Tunisian leasing and factoring companies, which unlike banks do not have access to the central bank refinancing window, and mainly rely on domestic financings to secure resources to grow.
AIL's asset quality metrics are weaker than the rest of the sector, with an impaired and non-performing leases ratio of 16.2% at end-2020. However, this ratio was inflated by the very low growth of its leases portfolio since 2018, reflecting the uncertainty surrounding the completion of the sale of BTK during that period. We expect a slight decline in AIL's non-performing leases ratio in the coming 18 months as the company returns to growth.
AIL's liquidity profile is another rating weakness, considering the company's significant negative gaps on short-term maturity buckets. Nonetheless, our assessment factors in some evidence of ordinary support from BTK and EG, in the form of contingent credit facilities, mitigating near-term liquidity risks.
EG is a large Tunisian conglomerate founded in 1946 with activities spanning across a wide range of industries, including automotive, power, telecom cables, agribusiness, real-estate, urban planning, retail, home appliances and consulting. EG is reportedly one of the biggest exporters in Tunisia, employing over 10,000 people and operating 30 subsidiaries worldwide.
BTK is also not rated by Fitch. Based on public disclosures, we consider the bank's financial profile to be very weak, having posted large losses for the past five years and exhibiting very weak capitalisation and asset quality metrics.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Potential for AIL's National Ratings to be upgraded is limited, given tough operating conditions in Tunisia. It will therefore be difficult for the company to improve its credit profile relative to other Tunisian companies.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
AIL's National Ratings are sensitive to a higher-than-expected increase in its impaired and non-performing loans ratio.
AIL's National Ratings are also sensitive to a marked deterioration in its liquidity profile. Signs of strains in the company's ability to access funding from domestic sources or from BTK and EG would likely trigger a downgrade.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
London, Tel: +44 20 3530 2452
Additional information is available on www.fitchratings.com
© Press Release 2021