TRIS Rating Co., Ltd. has affirmed the company rating of BSL Leasing Co., Ltd. (BSL) and the rating of BSL’s senior debentures at “BBB” with “stable” outlook. The ratings reflect the company’s experienced management team, acceptable risk management practices, and the company’s ability to maintain its market position as one of the top five leasing companies. The ratings also incorporate the improvement in leverage ratio and the financial support BSL receives from its major shareholders. However, these supporting factors are partly offset by the lack of an extensive network to service customers outside the central Bangkok area and limits imposed on the financial support received from the major shareholder, Bangkok Bank PLC (BBL). The limits might constrain BSL’s growth and financial flexibility. The “stable” outlook is based on TRIS Rating’s expectation that BSL will be able to continue obtaining financial support from its major shareholder, while continuing to diversify its funding sources. The outlook also takes into account the expectation that the management team will be able to maintain good asset quality and perform in line with TRIS Rating’s expectations.
TRIS Rating reported that BSL was established in 1985 as a 50:50 joint venture between BBL, companies owned by and affiliated with BBL (BBL Group) and Sumitomo Mitsui Banking Corporation (SMBC) in Japan (formerly known as Mitsui Taiyo Kobe Bank). BSL was established 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 supporting BSL.
TRIS Rating said, BSL has maintained its market position as one of the five market leaders, and was ranked fourth out of 11 equipment financing companies in TRIS Rating’s database as of December 2010. BSL’s loan portfolio increased from Bt3,828 million in 2007 to Bt4,877 million in 2010. The portfolio continued rising to reach Bt5,255 million in 2011. BSL’s business is concentrated only in the Bangkok Metropolitan Area (BMA) and only the head office provides services. Larger financial institutions are typically more geographically diversified than BSL. The limited geographic coverage limits BSL’s potential customers to Bangkok and the nearby area.
In 2008, BSL revised its accounting policy for depreciation expenses. The depreciation method was changed from the “sum of the year digit” method (SYD) to the “straight line” method. The company also now nets the salvage value of a leased asset with the asset acquisition cost when calculating the depreciation expense charges for leased assets. The revised depreciation method had substantially improved the company’s financial performance during 2008-2009 -- the amount of depreciation expense from existing leased assets is now lower. Net revenue (adjusted for net operating lease revenue) ranged from Bt100-Bt300 million annually during 2003-2007, before a substantial increase to Bt624 million in 2008 and a subsequent drop to Bt532 million in 2009. Net revenue decreased to what would be considered normal levels of Bt415 million and Bt412 million in 2010 and 2011, respectively, but remained improved from earlier periods, before the change in depreciation method. The company delivered relatively high returns on average equity (ROAE) of 48.71% in 2008 and 27.82% in 2009, but ROAE declined to a normal level of 16.43% in 2010. In 2010, BSL earned a net profit of Bt150 million, but the net profit tumbled to Bt54 million in 2011. The ROAE plunged to 5.31% in 2011, caused by the impact from the corporate rate income tax reduction from 30%. If the single extraordinary charge was excluded, BSL would show a normal level of profits for 2011.
Residual risk occurs when BSL or any leasing company disposes a leased asset after a lease contract ends. Efficient management of the residual risk has consistently generated substantial amounts of non-interest income for BSL, as it has made gains on the sale of previously-leased (residual) assets. Before the change in accounting policy in 2008, these gains constituted 22%-23% of net revenue. Gains from the sale 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. The jump in 2009 came because there were a large number of operating leases in the lease portfolio which expired that year. The gains from the sale of residual assets fell to Bt23 million and Bt29 million in 2010 and 2011, respectively. After the accounting policy changed, the gains from the sale of residual assets have made smaller contributions to BSL’s total revenue.
BSL has good asset quality, although it targets small- and medium-sized enterprises (SMEs), which are often vulnerable to adverse changes in the economy. The recent flood crisis has had little effect on the ability of BSL’s clients to make their lease payments. All lessees are currently paying normally. The ratio of non-performing loans (overdue for more than three months) to average loans was 1.76% in 2011. This level is lower than the levels at other leasing companies rated by TRIS Rating.
On 3 August 2008, the Bank of Thailand (BOT) released 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, in which a bank holds more than 10% of the total shares. The amount of debt 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 because in the past, BSL relied heavily on borrowings from BBL. However, since 2009, BSL has diversified its funding sources to other financial institutions. BSL began issuing bills of exchange in 2010 and issued Bt500 million in senior debentures in 2011. As of December 2011, only 4% of the company’s total liabilities of Bt5,056 million are borrowings from BBL, said TRIS Rating. — End
Company Rating: Affirmed at BBB Issue Rating: BSL136A: Bt500 million senior debentures due 2013 Affirmed at BBB Rating Outlook: Stable TRIS Rating Co., Ltd./www.trisrating.com Contact: santaya@trisrating.com, Tel: 0-2231-3011 ext 500/Silom Complex Building, 24th Floor, 191 Silom Road, Bangkok 10500, Thailand ? Copyright 2012, TRIS Rating Co., Ltd. All rights reserved. Any unauthorized use, disclosure, copying, republication, further transmission, dissemination, redistribution or storing for subsequent use for any purpose, in whole or in part, in any form or manner or by any means whatsoever, by any person, of the credit rating reports or information is prohibited. The credit rating is not a statement of fact or a recommendation to buy, sell or hold any debt instruments. It is an expression of opinion regarding credit risks for that instrument or particular company. The opinion expressed in the credit rating does not represent investment or other advice and should therefore not be construed as such. Any rating and information contained in any report written or published by TRIS Rating has been prepared without taking into account any recipient’s particular financial needs, circumstances, knowledge and objectives. Therefore, a recipient should assess the appropriateness of such information before making an investment decision based on this information. Information used for the rating has been obtained by TRIS Rating from the company and other sources believed to be reliable. Therefore, TRIS Rating does not guarantee the accuracy, adequacy, or completeness of any such information and will accept no liability for any loss or damage arising from any inaccuracy, inadequacy or incompleteness. Also, TRIS Rating is not responsible for any errors or omissions, the result obtained from, or any actions taken in reliance upon such information. All methodologies used can be found at http://www.trisrating.com/en/rating_information/rating_criteria.html.