TRIS Rating Co., Ltd. has affirmed the rating of Ratchthani Leasing PLC's (THANI) Bt1,000 million senior secured debentures (TANI078A) at "BBB". The rating reflects the continued growth of the domestic automobile market, the extensive experience of THANI's management in the used car hire purchase business, and its long-term relationships with dealers. However, the rating is partially offset by the intense competition from the major leasing companies and finance companies, which entered the used car hire purchase market by implementing price-cutting strategies. The rating takes into consideration the value of the hire purchase receivables for automobiles pledged as collateral, which are worth at least 135% of the outstanding debentures. Should the receivables fall below the 135% mark, THANI must make up the shortfall by holding cash equal to the value of the debentures not secured by the receivables. The "stable" outlook reflects that THANI should be able to maintain its competitiveness and profitability. THANI's low funding cost after the issuance of debentures supports its ability to compete. Moreover, other income from related service businesses supplements THANI's operating results to be in line with TRIS Rating's expectation. However, the increasing amount of non-accrual loans is a concern and, if this trend continues, it could negatively impact the rating.
TRIS Rating reported that in 2003-2004, competition in new car hire purchase industry was considered more intense than in used car hire purchase industry. Major leasing and finance companies not only aggressively expanded their portfolios in new car hire purchase but also began to provide services for high-yielding used car financing. With the higher competition in the used car hire purchase business, the gap has narrowed between the interest rates charged for used car loans and new car loans. Used car hire purchase requires a substantial spread to compensate for the high risk. As THANI has a higher cost of funds relative to finance companies, THANI has chosen not to compete on price, but to sustain its strong relationships with dealers. In addition, THANI has been trying to increase revenue from its service businesses, such as insurance brokerage commission and car registration renewal service fees.
TRIS Rating said that with the intense competition in the Bangkok Metropolitan area, THANI has expanded to nearby provincial areas, such as Ayudhya, Nakhornpathom, and Prathumthani. The staff's experience in assessing and appraising used car quality is one of key success factors to operate the used car hire purchase business because it can minimize the risk of loss when liquidating repossessed cars. THANI's long-term relationships with dealers and the speed at which it performs credit analysis provide the company with competitive advantages in areas other than price. Before 2003, other than interest income, THANI earned revenue from late payment penalty fees, which accounted for about 10.6% of its total income. However, in 2003, it focused on the collection process in order to avoid the risk of potential defaults and minimize the amount of non-accrual loans. The revenue from service businesses increased from 1.3% in 2001 to 8.5% in 2002 and 9.7% in 2003, to offset the lower revenue from late penalty fees which declined to 4.8% of total income in 2003.
A cabinet resolution in July 2004 to change the vehicle excise tax structure helps lower the retail price of compact passenger cars (under 2,000 c.c.) by approximately 5%, which should cut used car prices by the same rate. However, used car dealers will suffer most, as they have many used cars in stock. For leasing companies such as THANI, a down payment (typically not less than 15%) offers some protection from losses if the car must be repossessed, TRIS Rating said. - End
Ratchthani Leasing PLC's (THANI) Issue Rating: TANI078A: Bt1,000 million senior secured debentures due 2007 Affirmed at BBB Rating Outlook: Stable