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 reflects in part GL’s long track record in the motorcycle financing segment, the capability and experience of the management team, its improving market position, and adequate capitalization. However, intense competition in the motorcycle financing segment, plus the high credit risk profiles of its target customers, mitigate the strengths underlying the rating.
The “stable” outlook for GL’s issue rating hinges on the strength of the guarantor of the debentures. The support GL receives from its major shareholder is expected to continue. In addition, TRIS Rating expects GL to maintain its market position, control and improve its overall loan quality, as well as enhance its financial performance.
The issue rating or outlook downside case would emerge if GL’s asset quality or profitability deteriorates further than TRIS Rating’s expectation or if the creditworthiness of GL’s guarantor weakens. On the other hand, if GL keeps expanding in Cambodia, Lao PDR, and other markets while maintaining the loan quality at the current level, the issue rating or outlook could be positively impacted.
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 March 2016, APF remained the company’s major shareholder with a 48.99% stake.
GL’s management team changed in 2011. The new team successfully maintained the relationships with the company’s existing dealers and expanded GL’s dealer network, not only in the Thailand market but also in markets in other ASEAN nations. As a result of these efforts, GL improved its market position. Outstanding loans grew to Bt3,306 million at the end of 2012, soaring by 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. TNB’s loan portfolio held around Bt1,500 million in outstanding loans during 2013 and 2014. The acquisition of TNB helped 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 a pre-acquisition level of Bt5,291 million at the end of June 2014.
Due to the current economic slowdown, especially in the motorcycle financing business, many lessors, including GL, cut back on their efforts to expand their loan portfolios. The lessors are now focusing on improving asset quality. GL’s outstanding hire purchase and asset-backed loans remained at Bt6,656 million at the end of 2014, steady when compared with the previous quarter, and dropped by 1.5% to Bt6,553 million at the end of 2015. As of March 2016, GL’s outstanding hire purchase and asset-backed loans grew by 2% year-to-date to Bt6,682 million.
In 2013, GL started offering hire purchase loans in 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 March 2016, GLF’s loan portfolio comprised approximately 30% of GL’s consolidated outstanding loans, rising rapidly from 10% at the end of 2014. As of March 2016, the portfolio comprised hire purchase loans for motorcycles, Kubota farm equipment, and solar panels.
In 2014, GL started operating in the Lao People's Democratic Republic (Lao PDR) through a subsidiary, GL Leasing (Lao) Co., Ltd. (GLL). GLL uses a business model similar to the approach GLF takes in Cambodia. GLL focuses on loans for agricultural machinery and motorcycles. In addition, GL will expand to Indonesia through a subsidiary, PT Group Lease Finance Indonesia (GLFI), a joint venture between Group Lease Holdings Pte., Ltd. (GLH), J Trust Asia Pte., Ltd., and a local Indonesian company. GLFI received an official license from the Indonesian authorities (OJK) in July 2016.
GL’s loan quality has improved significantly recently, even though the Thai economy is still experiencing a slowdown. The quality of the portfolios has improved, as has the loan collection process. As the result of these improvement efforts, the ratio of non-performing loans (NPLs; loans overdue more than three months) to total hire purchase and asset-backed loans dropped from 9.4% at the end of 2014 to 5.9% at the end of 2015 and 5.1% at the end of March 2016.
GL’s financial performance in 2013 and 2014 was affected by the deterioration in loan quality and higher losses on repossessed motorcycles. The ratio of provision expenses to average hire purchase and asset-backed loans rose to 8.4% in 2013 and 8.6% in 2014. The ratio of losses on repossessed motorcycles to average hire purchase and asset-backed loans jumped to 7.6% in 2013 but fell slightly to 7.5% in 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, and Bt115 million in 2014, a 52% drop from 2013. The return on average assets (ROAA) dropped to 5.4% in 2013 and 1.8% in 2014, from 12.3% in 2012. However, GL’s financial performance recovered in 2015 and the first quarter of 2016. The ratio of provision expenses to average hire purchase and asset-backed loans dropped to 5.4% in 2015 and 4.3% (annualized) in the first quarter of 2016. The ratio of losses on repossessed motorcycles to average hire purchase and asset-backed loans decreased further to 5.4% in 2015 and 3.5% (annualized) in the first quarter of 2016. Net profit surged to Bt583 million in 2015 and Bt222 million for the first quarter of 2016. ROAA sprang to 6.5% in 2015 and 8.1% (annualized) for the first quarter of 2016. TRIS Rating expects GL will keep its effective underwriting and collection policies and continue to control its overall loan quality for the rest of 2016 and beyond.
GL’s financial flexibility has been enhanced after the shareholding structure changed in 2007. The company financed the growth of its loan portfolio with borrowings obtained through the financial support of its creditworthy major shareholder. Although GL’s borrowings increased 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 34.6% at the end of 2014. The ratio soared to 70.4% at the end of 2015 and 68.9% at the end of March 2016 as a result of a recapitalization in December 2015. The recapitalization included exercises of warrants and conversion of some outstanding debentures into equity. The ratio is 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 passenger cars and pick-up trucks. GL’s larger capital base will serve two main purposes: give it a base from which to expand into markets in other Association of Southeast Asian Nations (ASEAN), and serve as a cushion to protect against losses, given the risky nature of its target customers.
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