Leasing and capital equipment group Eqstra says the latest credit ratings confirm the strength of its balance sheet and prove that it has strong lines of bank facilities.

Standard & Poor’s Ratings Services announced on Tuesday it had reaffirmed Eqstra’s zaA/zaA-1 national scale ratings, which reflected its “leading commercial position in the South African leasing market, high profitability and good capitalisation”.

CEO Walter Hill said these ratings gave banks a high level of confidence in “our ability to pay off debts and cover interest payments” in the midst of a credit crunch.

He said there was huge demand for its leasing equipment such as commercial vehicles and forklifts.

Hill said a number of companies were increasingly turning to its leasing equipment because banks, which had tightened their credit standards, were reluctant to lend them money with which to buy equipment.

Eqstra, Hill said, had also experienced big demand for its rental equipment, which was mainly used in mining and construction.

He said there were still opportunities in open-cast mining and noted that there was still a lot of activity in this kind of surface mining, particularly in coal and iron ore.

The company, he said, was “selective” in picking companies it leased its equipment to. “We are taking a conservative view about which customers to do business with,” he said.

In its ratings, however, Standard & Poor’s warned that Eqstra faced heightened “counterparty credit risks”.

The agency said that funding and liquidity were other key risks confronting the group.

Funding, it said, was highly concentrated and reliant on the goodwill and capacity of a limited number of banks and institutional investors.

“Although Eqstra has some unutilised funds from these same banks that it could draw down if it was not able to roll over its domestic commercial paper, this would rapidly deteriorate its funding and liquidity profile,” the agency said.

“Negative rating actions could occur if there was any evidence of reduced support from funding partners, including the reduction of unutilised funds,” said Standard & Poor’s.

“Severe asset quality deterioration or capital erosion would also negatively affect ratings.”

But Standard & Poor’s said Eqstra had good control over the business risks and had “responded responsibly” to the economic downturn by reducing capital expenditure and promoting the longer life of leased assets.

“It is a market leader in all three of its business lines and benefits from good industrial diversification,” the agency said, referring to Eqstra, which “has a relatively diverse product offering and a holistic approach to leasing services”.

Although predominantly based in SA, Eqstra operated in 16 African countries and in the UK, said Standard & Poor’s.