TEXT-Fitch cuts Hannibal Lease to 'BB-(tun)';outlook stable

(The following statement was released by the rating agency)

Aug 03 - Fitch Ratings has downgraded Hannibal Lease's (HL) National Long-term rating to 'BB-(tun)' from 'BB(tun)', and affirmed its Short-term rating at 'B(tun)'. The Outlook on the National Long-term rating is Stable. A full list of rating actions is at the end of this comment.

RATING ACTION RATIONALE

The downgrade of HL's National Long-term rating reflects the heightened risks to the leasing company's financial profile arising from a material deterioration of its profitability and weakened credit quality indicators. In addition, HL's liquidity remains tight and weaker than its peers.

RATING DRIVERS

HL's profitability and credit quality was severely affected in 2011 by the deterioration of the country's political and economic environment. Non-performing loans materially increased, which combined with a slowdown in lending activity, resulted in the impaired loans/gross loans ratio peaking at 8.8% at end-2011. The net impaired loans/equity ratio was a significant 32% at end-2011 despite HL's effort to increase its stock of reserves (loan loss provisioning charges represented 61% of pre-impairment profit in 2011). Fitch views that HL's credit quality will remain under pressure in 2012, given its large stock of restructured loans (classified as performing and accounting for 8.7% of HL's net loans at end-2011) and high obligor concentration in its loan portfolio (the top 20 exposures accounted for 141% of Fitch core capital at end-2011). However, HL's recoveries efforts resulted in stabilised asset quality indicators at end-H112.

Fitch expects HL's profitability to recover only modestly in 2012 given the still difficult, albeit improving, operating environment in Tunisia and challenges in improving credit risk indicators. Operating profitability ratios were among the weakest in the sector in 2011, with operating ROAE and ROAA at 9.3% and 0.9%, respectively.

The Tunisian financial sector still faced a significant strain on liquidity in H112. HL does not benefit from the backing of a bank shareholder and is highly dependent on wholesale markets, which is a weakness in stressed market conditions. HL's liquidity is tight and its contingency funding is thin.

In Fitch's view, the Tier 1 ratio, although it would be strengthened following a planned capital increase by end-2012, will remain inadequate given HL's high level of net impaired loans.

RATING SENSITIVITY

Any movement (upward or downward) of the National Long-term rating would depend on HL's capacity to raise funds on the financial markets, and in particular to successfully issue bonds on the local market.

The rating actions are as follows:

National Long-term rating: downgraded to 'BB-(tun)' from 'BB(tun)'; Stable Outlook

National Short-term rating: affirmed at 'B(tun)'

National senior unsecured debt rating: downgraded to 'BB-(tun)' from 'BB(tun)'