TRIS Assigns Phatra Leasing's Corporate and Issue Ratings at "BBB"
Thai Rating and Information Services Co., Ltd. (TRIS) announced Wednesday 23 August 2000 that it assigned a "BBB" corporate credit rating to Phatra Leasing PLC (PL) and assigned a "BBB" rating to the company's PL#2 senior debentures due in 2003. The ratings reflect PL's long experienced management and efficient service, resulting in a stable number of leasing contracts. Its major top 10 customers are Thai Farmers Bank PLC (TFB) and the related companies of the Lamsam group. Funding support from TFB and the related companies provide adequate credit facilities for PL. However, these favorable factors are partially offset by the concentration of revenues from customers within the same group, which leads to an undiversified business risk for the company. PL's ability to expand business to new customers outside the group remains to be seen. Furthermore, large corporations typically set up leasing networks to service their own group of companies, creating a market barrier for other leasing companies. This might limit business opportunities for PL.
TRIS said that the support from TFB and the related companies, PL's major shareholders, was a main source of funds during difficult financial times. At mid-year 2000, leased assets of TFB and related companies accounted for 26% of PL's total lease asset. Conservative policies in credit underwriting and automobile residual risk management are major characteristics of PL's business operations. Its focus on full fleet service provides efficient service to meet customer demand. Lessees' ability to use a tax shield from rental expenditure also encourages leasing demand. PL is a market leader among the Thailand Leasing Association. However, a sizeable number of leasing firms are not part of the Thailand Leasing Association but compete in this market, which raises some business concern for PL. PL earned a Bt48 million profit in 1999 after posting a Bt170 million loss the previous year. Its net profit margin swung from 3.15% in 1997 to a negative 18.04% in 1998 under the burden of full provisioning losses and up to 6.57% as the economy rebounded in 1999. Interest expense, which accounts for around 20% of total costs, is a significant factor in determining PL's net profit margin. Consequently, PL's profitability is highly sensitive to interest rate fluctuations. A strategy to rely on fixed-cost long-term funds, such as debenture issues, will alleviate cost uncertainty from the money market and other short-term loans. As of fiscal year 1999 (ending September 1999), short-term loans accounted for 74.71% of its total debt, which is very high. Moreover, PL's strategy to refinance short-term loans by issuing debentures helps the company match source and use of funds. Its debt to equity ratio in 1999 at 1.69 times was far below that of peers. This should allow PL to borrow more funds, especially long-term loans for future business. However, PL's ability to access funds from its related financial institutions also depends on its own financial strength.
Phatra Leasing PLC (PL): Company rating Senior debt BBB Issue rating PL#2: Up to Bt400 million senior debentures due 2003 BBB