TRIS Rating Co., Ltd. has assigned a “BBB” rating to the proposed issue of up to Bt500 million in senior debentures of BSL Leasing Co., Ltd. (BSL). At the same time, TRIS Rating has affirmed the company rating of BSL at “BBB” with “stable” outlook. The proceeds from the issuance of debentures are mainly for loan portfolio expansion. The ratings reflect BSL’s experienced management team, acceptable risk management practices, improved market position and financial performance, as well as financial support from the major shareholders. However, these supportive factors are partly depressed by a lack of network to service customers outside the central Bangkok area, relatively high leverage ratio compared with peers, and the limited financial support from Bangkok Bank PLC (BBL) due to the regulation of the Bank of Thailand (BOT) on lending to related party, which limits BSL’s financial flexibility and constrains business growth.
The “stable” outlook is based on TRIS Rating’s expectation that BSL will be able to continue obtaining financial support from major shareholders while diversifying its funding sources. The outlook also takes into account the expectation that the management team will be able to maintain a good asset quality and keep its performance in line with TRIS Rating’s expectations.
TRIS Rating reported that BSL was established in 1985 as a 50:50 joint venture between BBL, with related companies (BBL Group), and Sumitomo Mitsui Banking Corporation (SMBC) in Japan (formerly known as Mitsui Taiyo Kobe Bank) to provide industrial equipment and vehicle financing services under leasing and hire purchase contracts. BSL entered the factoring business in 2004. Restructurings among some affiliated companies in the BBL Group in 2005 caused Bank Thai PLC (currently known as CIMB Thai Bank PLC) to end up holding a 10% stake in BSL while the shareholding of BBL Group fell to 40%. However, in the first half of 2009, BBL bought back the 10% stake from CIMB Thai Bank. This repurchase indicates BBL’s intention to continue to support BSL.
TRIS Rating said, BSL’s business and market positions continue to improve. BSL was ranked the third out of 12 equipment financing companies in TRIS Rating’s database as of December 2009, improving from the fifth as of December 2008. BSL’s loan portfolio doubled from Bt2,438 million in 2004 to Bt4,568 million in 2009. The portfolio continued rising to Bt4,848 million as of December 2010. BSL’s business is concentrated only in the Greater Bangkok area with all services provided by the head office. This limits its potential customers to Bangkok and the nearby areas, and causes the company to be less geographically diversified than other larger financial institutions.
In 2008, the company revised its accounting policy for depreciation expenses. The depreciation method was changed from the “sum of the years digits” (SYD) method to the “straight-line” method with salvage value included when calculating depreciation expense. The revised depreciation method substantially improved the financial performance during 2008-2009 as the depreciation expense from existing assets for lease was significantly reduced. Net revenue (adjusted for net operating lease revenue) ranged from Bt100-Bt300 million annually during 2003-2007. Net revenue substantially increased to Bt587 million in 2008, before falling to Bt493 million in 2009. Net revenue returned to a normal level of Bt415 million in 2010, but remains improved from earlier periods, before the change in depreciation method, due to expansion of the loan portfolio. The company delivered relatively high returns on average equity (ROAE) of 26.79% in 2006, 28.19% in 2007, 48.71% in 2008 and 27.82% in 2009. A larger equity base, a result of outstanding operating performances in 2008 and 2009, caused the ROAE to fall to 16.43% in 2010.
Efficient residual risk management has consistently generated substantial amounts of non-interest income from gains on sale of leased assets. Before the accounting policy change in 2008, these gains constituted 22%-23% of net revenue. Gains from sales of residual assets were Bt72 million in 2006, Bt73 million in 2007, and Bt32 million in 2008 before increasing again to Bt85 million in 2009 due to a large size of the expired operating lease portfolio. The gains fell to Bt23 million in 2010. After the change in depreciation method, the gain from sales of assets for lease has made a lesser contribution to total revenue.
On 3 August 2008, the BOT released a series of revised regulations covering financial institutions. One regulation limits the amount of debt financing that a commercial bank may provide to a related company. A related company is one in which a bank holds more than 10% of the total shares. The amount of debt funding provided to a related company must not exceed 5% of the lender’s capital funds or 25% of the borrower’s total liabilities, whichever is lower. The new regulation has constrained BSL’s financial flexibility as it relied heavily on borrowings from BBL. However, since 2009, BSL has diversified its funding sources to other financial institutions, and began issuing bills of exchange in 2010. As of December 2010, only 7% of the company’s total liabilities was a borrowing provided by BBL. The available credit facilities of Bt1,415 million as of December 2010 from major shareholders will be a cushion for the company to secure unexpected short-term liquidity risk.
BSL has a good asset quality, even though it targets customers from small- and medium-sized enterprises (SME), which are often vulnerable to adverse changes in the economy. The ratio of non-performing loans (NPL) (overdue for more than three months) to average loans is around 2%, relatively low compared with other leasing companies rated by TRIS Rating. In addition, all BSL’s NPLs were fully provided, said TRIS Rating. -- End
Company Rating: Affirmed at BBB Issue Rating: Up to Bt500 million senior debentures due within 2013 BBB Rating Outlook: Stable
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