TRIS Rating Co., Ltd. has affirmed the company rating of Nava Leasing PLC (NVL) at "BBB" and has also affirmed the rating of NVL's Bt1,200 million senior secured debentures (NVL063A) at "BBB+". The ratings are based on NVL's experienced management team, sustained and solid relationships with automobile dealers and its efficient asset quality control. The ratings are constrained by NVL's relatively high cost of funds compared with other major players especially finance companies. Moreover, finance companies and captive leasing operators have reduced down payments and continued to cut prices, making competition more intense and weakening NVL's profitability. If the intense competitive environment continues and NVL cannot maintain its competitiveness, NVL's ratings may be adversely affected. TRIS Rating said that the rating of NVL063A takes into consideration the value of the hire purchase and financial lease receivables for automobiles pledged as collateral, which is equivalent to 125% of the outstanding value of the debentures. Should the receivables fall below the 125% mark, NVL must make up the shortfall by holding cash equal to the value of the debentures not secured by the receivables.
TRIS Rating reported that the automobile hire purchase industry is highly competitive. Competition intensified in 1999 when foreign players, captive leasing operators, and finance companies entered the business. To increase their customer bases and market shares, some of the big players have employed aggressive strategies such as cutting lending rates and lowering down payments. Although NVL's management demonstrated its ability to escape the worst of the financial crisis in 1997, the company's relatively higher cost of funds compared with its peers is likely to make it more difficult to maintain its market position. The recently announced Financial Master Plan will allow the commercial banks to operate hire purchase businesses. TRIS Rating expects the commercial banks will enter this industry by focusing at first on the new car hire purchase business which requires less experience than the used car hire purchase business. Current competitors which focus on new cars, such as NVL, will face difficulty competing with the commercial banks which have extensive networks and lower funding cost. NVL, therefore, has re-entered businesses with which it had much experience before the crisis of 1997: the hire purchase and financial lease businesses for machinery and equipment. These segments have lower competition and yield higher returns; however, the new businesses also expose NVL to higher customer concentration risk.
TRIS Rating said NVL's leverage has been satisfactory although major leverage ratios have deteriorated since 2000. At the end of 2003, NVL reported an equity-to-total assets ratio of 20.32%, down from 32.92% in 2002 and 51.43% in 2001, because its assets have grown faster than its equity. NVL has consistently reported net profit, even during the crisis years, though the figure nose-dived to Bt8 million in 1997, reflecting the impact of foreign exchange rate losses. Net income improved steadily after the crisis, increasing from Bt44 million in 1998 to Bt62 million in 1999 and to Bt91 million in 2000. However, net income dropped to Bt60 million in 2001 and to Bt61 million in 2002 primarily due to lending rate cuts implemented to keep its market position and from increases in operating expenses. For 2003, NVL showed net profit of Bt67 million, resulting from the portfolio expansion and enjoyed a lower average cost of funds from short-term funding. However, it caused NVL to face an assets-liabilities mismatch from this short-term funding. NVL plans to issue new long-term debentures this year to mitigate this mismatch. Furthermore, the company will continue to be challenged to maintain its profitability under the intensely competitive environment, TRIS Rating said. -- End
Nava Leasing PLC (NVL)Company Rating: Affirmed at BBBIssue Rating:NVL063A: Bt1,200 million senior secured debentures due 2006 Affirmed at BBB+
TRIS Rating reported that the automobile hire purchase industry is highly competitive. Competition intensified in 1999 when foreign players, captive leasing operators, and finance companies entered the business. To increase their customer bases and market shares, some of the big players have employed aggressive strategies such as cutting lending rates and lowering down payments. Although NVL's management demonstrated its ability to escape the worst of the financial crisis in 1997, the company's relatively higher cost of funds compared with its peers is likely to make it more difficult to maintain its market position. The recently announced Financial Master Plan will allow the commercial banks to operate hire purchase businesses. TRIS Rating expects the commercial banks will enter this industry by focusing at first on the new car hire purchase business which requires less experience than the used car hire purchase business. Current competitors which focus on new cars, such as NVL, will face difficulty competing with the commercial banks which have extensive networks and lower funding cost. NVL, therefore, has re-entered businesses with which it had much experience before the crisis of 1997: the hire purchase and financial lease businesses for machinery and equipment. These segments have lower competition and yield higher returns; however, the new businesses also expose NVL to higher customer concentration risk.
TRIS Rating said NVL's leverage has been satisfactory although major leverage ratios have deteriorated since 2000. At the end of 2003, NVL reported an equity-to-total assets ratio of 20.32%, down from 32.92% in 2002 and 51.43% in 2001, because its assets have grown faster than its equity. NVL has consistently reported net profit, even during the crisis years, though the figure nose-dived to Bt8 million in 1997, reflecting the impact of foreign exchange rate losses. Net income improved steadily after the crisis, increasing from Bt44 million in 1998 to Bt62 million in 1999 and to Bt91 million in 2000. However, net income dropped to Bt60 million in 2001 and to Bt61 million in 2002 primarily due to lending rate cuts implemented to keep its market position and from increases in operating expenses. For 2003, NVL showed net profit of Bt67 million, resulting from the portfolio expansion and enjoyed a lower average cost of funds from short-term funding. However, it caused NVL to face an assets-liabilities mismatch from this short-term funding. NVL plans to issue new long-term debentures this year to mitigate this mismatch. Furthermore, the company will continue to be challenged to maintain its profitability under the intensely competitive environment, TRIS Rating said. -- End
Nava Leasing PLC (NVL)Company Rating: Affirmed at BBBIssue Rating:NVL063A: Bt1,200 million senior secured debentures due 2006 Affirmed at BBB+