TRIS Rating said today that the acquisition of Thanaban Co., Ltd. (TNB) by Group Lease PLC (GL) will weaken the financial profile of GL due to higher leverage. The credit profile of GL has been factored into the rating and outlook for GL’s outstanding partially guaranteed debentures. However, the effect from the acquisition will not affect GL’s issue rating and outlook by the time being.
On 18 June 2014, GL entered a share sale and purchase agreement with Thai Credit Retail Bank PLC (TCRB). GL agreed to purchase all of TNB’s paid-up shares, at a value not exceeding Bt1,530 million. The purchase value includes the assumption of all of TNB’s debts and obligations. TNB, a wholly-owned subsidiary of TCRB, is a motorcycle financing company in Thailand, the same business as GL.
If GL funds the acquisition by issuing new debt, its capital structure will be weaker but remain strong enough to support the high risk nature of the motorcycle financing business. In addition, GL’s financial flexibility would be lower if it used debt to pay for the acquisition of TNB. The ratio of shareholders’ equity to total assets will slide from approximately 40% to 30%.
At the end of 2013, TNB’s outstanding loan portfolio was valued at Bt1,563 million. The acquisition would partly enhance GL’s market position because the value of its loan portfolio would rise from the current value of around Bt5,000 million to about Bt6,500 million after the acquisition. The acquisition would bring several benefits to GL, such as greater economies of scale, wider market coverage, and a larger dealership network. However, the acquisition carries transition risk during its business integration period, which GL would need time to prove it can realize the expected synergies from the acquisition.
GL’s outstanding debentures are partially guaranteed by KASIKORNBANK PLC (KBANK). KBANK guarantees it will pay 60% of the outstanding amount of principal and interest, up to Bt300 million.
TRIS Rating currently rates GL’s partially guaranteed debentures at “A-” with a “stable” outlook.
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