TRIS Affirms KK's Company Rating and Assigns KK's Issue Rating at "BBB"
Thai Rating and Information Services Co., Ltd. (TRIS) announced in a CreditUpdate Wednesday 21 June 2000 that it has affirmed the "BBB" company credit rating of Kiatnakin Finance PLC (KK) and also assigned a "BBB" credit rating to KK's Bt1,000 million senior unsecured debentures due 2004 with a call option at par at the end of the third year.
TRIS reported that KK acquired 99.99% of common shares in Ratanatun Finance PLC (RT) from the Financial Institution Development Fund (FIDF) in March 2000 for Bt1,385 million. RT has earned good return from investment in hire purchase loans bought from auctions of the Financial Sector Restructuring Authority (FRA). Because of the relatively small asset size of RT, TRIS does not expect to see substantial support to KK's whole business. The inherent risks from uncertain quality of the KK's commercial loans are still TRIS's major concern. Nevertheless, KK's strategy to invest in loans purchased at auction instead of providing new loans has resulted in satisfactory returns in the sluggish economic environment. Strong operational performance since early 1999 has improved KK's financial profile and gives a positive development for KK. In late 1998, KK and RT set up the RT-KK investment fund to invest in hire purchase loans being auctioned by the FRA. In 1999, FRA loans in the RT-KK investment fund accounted for 23.22% of RT's Bt1,381 million assets and 0.98% of KK's assets, but they generated considerable returns. RT's net profit jumped from Bt25 million in 1998 to Bt705 million in 1999. Almost 100% of RT's Bt338 million hire purchase loan portfolio is good quality assets. Acquiring RT will enhance KK's customer base marginally. RT focuses on the Bangkok metropolitan area, whereas KK is strong in provincial areas.
KK's asset quality showed slight improvement from the third to the fourth quarter of 1999. The ratio of non-accrual loans to total loans (excluding accrued interest) dropped from 39.82% to 34.11%, which is below the finance companies' industry average of 49.22%. However, the non-accrual loan ratio climbed in the first quarter of 2000 to 39.66% because of Bt6,200 million worth of FRA loans added to its balance sheet at the end of 1999. The FRA's prohibiting loan buyers from discounting loan values below 80% of face value within six months of auction date limited the negotiating and restructuring process for these loans. In the three months since December 1999, most of the Bt6,200 million FRA loans have deteriorated to non-accrual. However, the value of debt restructuring during 1999, Bt2,128 million or 32.11% of the value of non-accrual loans as of 31 December 1998, indicates that the management of KK is making progress in coping with its asset quality problem. Provision for possible loan losses as of 31 December 1999 covered 73.02% of actual provision for possible loan losses which was higher than the 60% minimum requirement of the Bank of Thailand.
Total income increased from Bt2,679 million to Bt5,176 million as of 31 December 1998 and 1999 respectively. Net profits of Bt1,228 million as of 31 December 1999 were solidly ahead of Bt704 million losses in the previous year. KK's BIS capital adequacy ratio as of 31 December 1999 at 13.02% was high enough to maintain its capital base without having to inject new capital. KK's equity to asset ratio rose from 9.35% as of 31 December 1998 to 12.50% as of 31 December 1999 because strong earnings during 1999 wiped out almost all retained losses. However in March 2000, KK announced a plan to issue Bt1,400 million in new common shares for the future business. KK's loans to public borrowing dropped from 155.03% to 100.60% as of 31 December 1998 and 1999 respectively. The issuance of KK#7, Bt1,000 million senior debentures, will not be a major burden for KK. The future performance and the expiration of KK's investment funds, which consist of FRA acquired loans, are anticipated to provide sufficient cash to service the bullet payments of these debentures when they become due in 2004.
Kiatnakin Finance PLC (KK): Company rating Senior debt Affirmed at BBB
Issue rating KK#7: Bt1,000 million senior debentures due 2004 BBB
Note: "CreditUpdate" reviews ratings of companies or debt issues that have already been rated by TRIS. The CreditUpdate occurs when new debt instruments are issued or if significant events have taken place that may impact a company's current ratings or when current ratings are cancelled. The CreditUpdate announces whether a rating has been "upgraded," "downgraded," "affirmed" or "cancelled." The update includes information to supplement the previously published ratings.
CreditUpdates are part of TRIS's monitoring process. TRIS monitors every rating it assigns until either the debt instrument matures or the rating contract ends. To keep the public informed of changing situations, TRIS periodically issues announcements about the credit ratings it monitors.
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