TRIS Rating Co., Ltd. has affirmed the company rating of Siam Panich Leasing PLC (SPL), the ratings of its senior debentures and the rating of its bills of exchange at "A-". The ratings are based on SPL's experienced management team, acceptable asset quality, and its sustained and solid relationships with automobile dealers. The ratings also take into account its success in locating branches in high potential provincial areas to avoid the fierce competition in the Bangkok Metropolitan Area and to diversify its sources of revenue. However, these strengths are partially offset by intense competition due to the entry of captive finance companies into the new car high purchase business and aggressive moves by finance companies in the used car hire purchase business. SPL's "stable" outlook reflects the fact that the company's performance will remain in line with TRIS Rating's expectation despite gradually rising funding costs and a highly competitive environment. SPL will be able to maintain its strong market position and maintain non-accrual loans at low levels through the experienced management team and a conservative credit approval process.
TRIS Rating reported that as of September 2004, the outstanding hire purchase loans of SPL were Bt32,880 million, representing 22% growth from the end of 2003. SPL granted new hire purchase loans at an average of Bt1,750 million per month in 2004, more than its projection of Bt1,580 million per month. Net profit for the first nine months of 2004 was Bt690 million, more than Bt593 million for the same period in 2003. However, as competition intensified, SPL had to spend more non-interest expenses to protect its market share. SPL's operating expenses to total income increased to 18.40% for the first nine months of 2004 from 17.31% for the same period in 2003. Nevertheless, SPL has been able to maintain an interest spread of around 4%-5% since 2000. The overall yield from the total portfolio decreased from 13.92% in 1999 to 11.89% in 2001 as a major finance company entered the hire purchase market with an aggressive pricing strategy together with the declining interest rate in the prevailing market. The overall yield continuously decreased to 10.57% in 2002, to 9.69% in 2003 and to 8.93% for the first nine months of 2004. However, SPL was able to reduce the average cost of funds in line with the declining interest rate trend. The debentures issued in 2003 (SPL073A) and 2004 (SPL073B) carrying 3.20% and 3.85% coupon rates respectively partly helped reduce the average cost of funds from 5.37% in 2002 to 4.02% in 2003 and to 3.67% for the first nine months of 2004.
SPL manages its loan portfolio quite efficiently. Conservative management has resulted in a low level of non-accrual loans: 1.96% of average loans at the end of September 2004. SPL's hire purchase business, which accounted for 93% of its total lending portfolio, reported a ratio of non-accrual loans to outstanding hire purchase loans of only 0.76% at the end of September 2004. SPL has nine branches located in high potential provinces. The percentage of new hire purchase loans from those branches to total new loans increased from 51% in 2002 to 55% for the first nine months of 2004. These branches help the company compete with finance companies and big captive leasing companies which also have branches nationwide. SPL is able to maintain its market position by diversifying its sources of revenue outside the Bangkok area, which has the toughest price competition. The company plans to open new branch in 2005.
SPL's loan portfolio has grown rapidly since 1999. Compared with the end of 1999, total assets rose by 300% as of the end of September 2004, outstripping growth in shareholders' equity of 198% over the same period. The debt to equity (D/E) ratio increased from 2.64 times in 2000 to 5.68 times at the end of September 2004 which nearly the eight times level specified in the debenture covenants. SPL should balance portfolio growth with increasing risk due to higher leverage. Initially, its management expected that warrant conversion would help boost equity. However, SPL's second warrant issue is likely to expire without exercise on the last exercise date because the current stock price of Bt34 per share (as of 9 December 2004) is less than the exercise price of Bt35 per share. Therefore, improving leverage may come from a new capital injection or securitizing its existing portfolio, TRIS Rating said. - End
Siam Panich Leasing PLC (SPL) Company Rating: Affirmed at A- Issue Ratings: SPL055A: Bt3,500 million senior debentures due 2005 Affirmed at A- SPL063A: Bt3,000 million senior debentures due 2006 Affirmed at A- SPL073A: Bt3,500 million senior debentures due 2007 Affirmed at A- SPL073B: Bt3,500 million senior debentures due 2007 Affirmed at A- Bt225 million bills of exchange due 2008 Affirmed at A- Rating Outlook: Stable