TRIS Rating has affirmed the rating of “A-” for the senior partially guaranteed debentures of Group Lease PLC (GL) with “stable” outlook. The debentures are partially guaranteed by KASIKORNBANK PLC (KBANK). KBANK guarantees to pay 60% of the outstanding principal and interest of the debenture issue. The guarantee is capped at Bt300 million. KBANK is rated “BBB+” by Standard and Poor’s, with a “stable” outlook (international scale). In addition to the strength of the unconditional and irrevocable guarantee given by KBANK, the issue rating partially reflects GL’s long track record in the motorcycle financing segment, the capability and experience of management team, its improving market position, and adequate capitalization. However, intense competition in the motorcycle financing segment, plus high credit risk profiles of its target customers mitigate the strengths underlying the rating. In addition, GL’s financial performance has deteriorated. The recent economic slowdown also has pressured the rating. The “stable” outlook for GL’s issue rating is highly based on the strength of the guarantor of debentures. The support GL receives from its major shareholder is expected to continue. In addition, TRIS Rating’s expect GL will be able to maintain its market position, control and improve its overall loan quality, as well as enhance its financial performance in 2015. If GL’s financial performance deteriorates further than TRIS Rating’s expectation, the issue rating may be affected.
GL was established in 1986 by the Luaengrungsi family to make automobile hire purchase loans. In 1990, the company was acquired by Mr. Khanchai Boonpan and Mr. Anusak Intharaphuvasak. The company then shifted its focus to hire purchase loans for motorcycles. The company’s market position improved in 2005 after listing on the Stock Exchange of Thailand (SET) in 2004. GL’s shareholding structure changed in 2007. The Asia Partnership Fund (APF), an investment fund from Japan, purchased all the shares held by the major shareholders. After APF bought the shares and made a tender offer to the remaining retail shareholders, APF became GL’s major shareholder. As of 14 May 2014, APF remained the company’s major shareholder with a 65.1% stake.
After GL’s management team changed in 2011, the new team tried to expand GL’s dealer network and maintain the relationships with GL’s existing dealers. As a result of these efforts, GL improved its market position. Outstanding loans grew to Bt3,306 million at the end of 2012, soaring 49.8% from the level at the end of 2011. The loan portfolio continued to grow, rising to Bt4,922 million at the end of 2013, up 48.9% from the level in 2012. In terms of outstanding loans, GL is the third-largest motorcycle financing company, out of the 10 major firms in TRIS Rating’s database. In July 2014, GL acquired all the shares of Thanaban Co., Ltd. (TNB) from Thai Credit Retail Bank PLC (TCRB). TNB is a well-known, medium-sized motorcycle financing firm. GL’s loan portfolio held around Bt1,500 million in outstanding loans during the past three years. The acquisition of TNB helps GL improve its market position in terms of outstanding loans. In addition, GL benefits from TNB’s dealership network. After it bought TNB, GL’s consolidated outstanding loans rose to Bt6,697 million at the end of September 2014, from Bt5,291 million at the end of June 2014.
In 2012, GL expanded into Cambodia through its wholly-owned subsidiary, GL Finance PLC (GLF). The company has cooperated with Honda NCX, the sole authorized manufacturer and distributor of Honda motorcycles in Cambodia. At the end of September 2014, GLF’s loan portfolio comprised 6% of GL’s consolidated outstanding loans, rising from 3% at the end of 2013. It will take time to see if GL’s international expansion efforts are successful and if the expansion will enhance the company’s financial performance.
GL’s loan portfolio deteriorated substantially in 2011 due to the severe floods in Thailand. The ratio of non-performing loans (NPLs: loans overdue more than three months) to total loans rose from 7.8% in 2010 to 12.4% in 2011. The NPL ratio improved to 5.5% in 2012 after the repayment ability of its customers improved. GL’s loan quality has been affected by the recent economic slowdown, just as with other motorcycle financing firms. The NPL ratio climbed to 9.6% at the end of 2013 and 10.3% as of September 2014.
GL’s financial performance improved dramatically in 2012. Net income jumped to Bt357 million in 2012 from Bt215 million in 2011. In 2012, GL changed its provisioning policy by changing the fixed percentages used to determine the allowance for doubtful accounts for each class of loan. In addition, the overall loan quality in 2012 also improved. As a result, GL’s provision expenses significantly decreased. The ratio of provision expenses to average loans fell from 8.5% in 2011 to only 1.6% in 2012. The ratio of the allowance for doubtful accounts to total loans also dropped, sliding to 5.3% in 2012 from 13.2% in 2011. GL’s financial performances in 2013 and 2014 have been affected by a deterioration in loan quality and higher losses on repossessed motorcycles. The ratio of provision expenses to average loans rose to 8.4% in 2013 and 9.1% for the first three quarters of 2014 (annualized). The ratio of losses on repossessed motorcycles to average loans increased to 7.6% in 2013 and 7.1% for the first three quarters of 2014, from 5.1% in 2012. The rises in provision expenses and losses on repossessed motorcycles pushed net profit down to Bt240 million in 2013, a 33% drop from 2012. The return on average assets (ROAA) dropped to 5.4% in 2013 from 12.3% in 2012. Net profit tumbled to Bt22 million for the first three quarters of 2014 as the ROAA slid to 0.45% (annualized). TRIS Rating expects GL will make its underwriting and collection policies more stringent. TRIS Rating also expects GL to control and improve its overall loan quality by 2015.
GL’s financial flexibility has been enhanced after the shareholding structure changed in 2007. The company financed the growth in its loan portfolio with borrowings obtained through the financial support of its creditworthy major shareholder. Although GL’s borrowings increased from Bt954 million in 2007 to Bt3,111 million in 2013, the ratio of shareholders’ equity to total assets remained strong, due in part to a series of recapitalizations and strong financial performance. The ratio of shareholders’ equity to total assets dropped to 41.1% at the end of 2013, from 45.6% in 2012 and 57.9% in 2011. The acquisition of TNB in mid-2014 was largely a debt-financed acquisition. The acquisition caused the ratio of shareholders’ equity to total assets to drop to 33.2% at the end of September 2014. Despite the fall, the ratio was considered adequate to support the high risk nature of the motorcycle financing business. TRIS Rating expects the company to maintain a larger capital base than other vehicle financing companies which primarily finance passengers and pick-up trucks. GL’s larger capital base will serve as a cushion to absorb risk because many of GL’s customers have higher credit risk profiles. GL’s customers are more vulnerable to adverse changes in the economy.
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