TRIS Rating has assigned the rating of “AA-” to the proposed issues of up to Bt2,500 million in senior unsecured debentures of Ayudhya Capital Auto Lease PLC (AYCAL). At the same time, TRIS Rating has affirmed the company rating and the ratings of the outstanding senior unsecured debentures of AYCAL at “AA-”. The outlook remains “stable”. AYCAL’s ratings are enhanced from its stand-alone rating as AYCAL is a strategic subsidiary of Bank of Ayudhya PLC (BAY), rated “AAA” with a “stable” outlook by TRIS Rating. AYCAL is a motorcycle hire purchase lender, enhancing BAY’s competitive edge in the vehicle financing industry.
AYCAL’s stand-alone rating is based on the proven track record of the company’s management team and its position as the leading originator of motorcycle hire purchase loans. The stand-alone rating reflects three additional factors. AYCAL’s leverage fell after it completed a recent capital restructuring. AYCAL also has a rigorous risk management system. Lastly, the rating reflects AYCAL’s high level of financial flexibility because it can receive an unlimited amount of funding from BAY.
The “stable” outlook reflects the expectation that AYCAL’s business direction will remain closely aligned with BAY’s business strategy and the assumption that AYCAL will continue to receive a high level of support from its parent company. The outlook also considers the ability of the management team to maintain AYCAL’s strong market position as a motorcycle hire purchase lessor. With its experienced management team, rigorous risk management system, and strong support from BAY, TRIS Rating expects AYCAL to improve its profitability and maintain a capital base strong enough to serve as a cushion against any downside risks in the motorcycle hire purchase business.
The rating or outlook upsides are the case that AYCAL’s business and financial profiles improve significantly. The improvement is considered by higher profitability together with the ability to maintain good asset quality and strong market position on a sustainable basis. The ratings or outlook could be revised downward should there be any factors which would significantly deteriorate AYCAL’s asset quality, competitive position, and support from the parent bank.
AYCAL became BAY’s wholly-owned subsidiary in February 2008. AYCAL’s loans and receivables, as of December 2015, accounted for 9% of BAY’s consolidated loans. Net income of AYCAL for all of 2015 comprised 19% of BAY’s consolidated net income for the same period. AYCAL receives a significant amount of business support and financial support from BAY. The support it receives is expected to further enhance AYCAL’s market position in its core businesses and improve its financial flexibility. As an indication of the financial support AYCAL receives from BAY, loans to AYCAL comprised 46% of BAY’s total lending to subsidiaries as of December 2015 and March 2016.
Before 2014, AYCAL was the only subsidiary of BAY which made auto loans, under the name “Krungsri Auto”. The company provided hire purchase financing for the purchase of new cars, used cars, and motorcycles, and offered secured personal loans to consumers through auto sales and lease back agreements. However, since the beginning of 2014, AYCAL has adopted a new auto financing business model. All new auto loans, including auto hire purchase financing and secured personal loans, have been booked at BAY. AYCAL now offers only motorcycle financing services, but continues to manage its existing portfolio of auto loans. This move has been part of the Krungsri Group’s business strategy, which is expected to increase its competitive advantage and deliver long-term sustainable growth. AYCAL also renders collection services to BAY. In terms of outstanding loans, AYCAL is the largest of the 10 large motorcycle hire purchase lenders in TRIS Rating’s database. AYCAL’s outstanding loans reached Bt10.7 billion at the end of 2014, representing about 27% market share. The loan portfolio grew to Bt13.4 billion as of December 2015.
With 20 years of experience in the industry, AYCAL has developed a proficient management team and a strong business platform. These two factors give it a competitive advantage and maintain its market-leading position. AYCAL follows BAY’s risk management model. BAY inherited the model from its previous strategic shareholder, GE Capital International Holding Corporation (GECIH), and its current strategic shareholder, the Bank of Tokyo Mitsubishi UFJ Co., Ltd. (BTMU). In addition, both AYCAL and BAY are regulated under the same criteria set by the Bank of Thailand (BOT). Due to its prudent credit risk management system and an efficient collection system, AYCAL’s asset quality has been better than peers. However, the non-performing loan (NPL) ratio, defined as loans more than three months past due divided by total loans, has increased steadily, rising to 1.53% at the end of 2013, 2.09% at the end of 2014, and 2.41% at the end of 2015, from 1.1% at the end of 2012. Asset quality deteriorated during the ongoing economic slowdown in Thailand.
AYCAL’s profitability slightly declined in 2013 and 2014. The prices of used automobiles and used motorcycles dropped sharply as a consequence of the tax rebate scheme for first-time buyers of new cars. AYCAL suffered significant losses on the sales of repossessed vehicles, as did many of its peers. AYCAL’s net income decreased from Bt4,750 million in 2012 to Bt3,443 million in 2013 and Bt3,123 million in 2014. The return on average assets (ROAA) and the return on average equity (ROAE) also dropped in these two years. ROAA fell to 1.6% in 2013 and 2014, compared with 2.68% in 2012. ROAE slipped to 15.94% in 2013 and 11.7% in 2014, from 27.14% in 2012. However, in 2015, AYCAL’s financial performance improved markedly, due to lower borrowing expenses, lower operating expenses, and lower provision expenses. Net income was Bt3,590 million, up by 14.92% from 2014. ROAA and ROAE rose to 2.59% and 12.04%, respectively.
AYCAL’s high level of financial flexibility stems from AYCAL’s status as one of BAY’s solo consolidated subsidiaries. As a solo consolidated subsidiary, AYCAL must comply with BOT’s consolidated supervisory standards. In return, BAY, the parent company, can provide an unlimited amount of funding to its subsidiary.
AYCAL strengthened its capital base through a recent capital restructuring. After BAY, the parent bank, became a foreign-majority owned commercial bank, AYCAL's status changed to a foreign company. Under the Foreign Business Act, AYCAL is required to maintain sufficient capital in order to keep its debt equal to or no more than 7 times capital. In June 2014, AYCAL increased capital and allocated Bt20,900 million of retained earnings as a stock dividend to existing shareholders. At the end of June 2014, paid-up capital increased to Bt25,545 million from Bt1,045 million, and shareholders' equity rose to Bt28,367 million from Bt24,092 million. The ratio of total shareholders’ equity to total assets rose from 11.38% as of March 2014 to 14.53% as of June 2014. The trend continued and the ratio further rose to 18.3% at the end of 2014 and 26.1% at the end of 2015. At the same time, the ratio of total liabilities to total shareholders’ equity improved significantly to 5.88 times in June 2014 from 7.78 times as of March 2014. The ratio further improved to 4.46 times at the end of 2014 and 2.83 times at the end of 2015.
AYCAL188A: Bt600 million senior unsecured debentures due 2018 AA- AYCAL191A: Bt1,000 million senior unsecured debentures due 2019 AA- Up to Bt2,500 million senior unsecured debentures due within 2019 AA- 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 2016, 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, without the prior written permission of TRIS Rating Co., Ltd. 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.