TRIS Rating Co., Ltd. has upgradeed the company rating of Ayudhya Development Leasing Co., Ltd. (ADLC) to “A-” from “BBB+” with “stable” outlook. The upgrade is based on the enhancement of ADLC’s stand-alone rating as it is a strategic subsidiary of Bank of Ayudhya PLC (BAY) in the industrial machinery and equipment leasing business, fulfilling its parent’s universal banking policy. BAY is currently rated by TRIS Rating at “A+”, with a “positive” outlook. The ADLC’s stand-alone rating reflects its strong market position in the industrial machinery and equipment leasing industry, a capable and experienced management team with a proven track record, and its ability to maintain low operating costs. However, these strengths are partially offset by higher customer concentration risk, higher risk profiles of its target customers than those of commercial banks, and an unfavorable operating environment, which may adversely impact the company’s asset quality, profitability and business expansion in the future.
The “stable” outlook reflects TRIS Rating’s expectation that ADLC’s business direction will closely align with BAY Group’s business strategy, and that the company will continue to get strong support from BAY. The outlook also considers ADLC’s management’s ability to sustain a strong market position in its core business. The outlook also takes into account the expectation that management will be able to control its asset quality, in line with TRIS Rating’s expectation, during a vulnerable period of economic change.
TRIS Rating reported that as of December 2007, of the 13 leasing operators in TRIS Rating’s database, ADLC is the market leader with a 13.4% market share in terms of total outstanding loan portfolio, which shows improvement from 11.8% in 2006. In 2007, ADLC reported net interest and dividend income (including net operating lease income) of Bt227 million, a substantial 25% growth from Bt183 million in 2006. The improvement was in line with the 20% growth of its loan portfolio (including net operating lease assets) to Bt5,798 million in 2007 from Bt4,819 million in 2006. However, net income declined slightly to Bt80 million in 2007 from Bt82 million in 2006, mainly due to a significantly higher provision for doubtful accounts. ADLC set aside Bt81 million of provisions for doubtful accounts in 2007, up from Bt53 million in 2006, in order to provide an extra cushion against the possibility of asset quality deterioration during an economic slowdown. The ratio of non-performing loans (NPL) (net from cash deposits) to average loans (net from cash deposits) increased to 7.50% at the end of 2007 from 5.61% at the end of 2006, while the ratio of allowance for doubtful accounts to total loans increased to 3.35% at the end of 2007 from 2.38% at the end of 2006. As a result, the NPL coverage ratio improved to 69.29% in 2007 from 62.87% in 2006.
ADLC’s target customers are small and medium enterprises (SME), which are vulnerable to changing economic and business environment. This exposes ADLC to higher risk from credit quality deterioration during the current economic slowdown. ADLC is considered to have a high concentration risk among its large customers. The outstanding loans to its top-ten customers accounted for 34% of its total loans in 2007, up from 32% and 29% in 2006 and 2005, respectively. However, ADLC has benefited from its concentration on big-ticket customers, in terms of low operating cost. In 2007, the ratio of operating expenses to total income decreased to 10.31% from 12.27% in 2006, which was less than the 20%-30% ratio recorded by its peers.
In 2004, BAY implemented a universal banking policy and positioned ADLC as a strategic entity to penetrate the industrial machinery and equipment leasing industry. In the same year, BAY injected new capital into ADLC, both by exercising its own rights and assuming the unexercised portions of other shareholders. BAY has continuously purchased ADLC shares from other shareholders. In February 2008, ADLC became a 99.99% subsidiary of BAY after the bank purchased the last large portion of outstanding shares; a 10% shareholding from a foreign investors who had helped establish the company in 1991. ADLC consequently became closely aligned with BAY’s business strategy, providing services to both BAY’s and non-BAY customers. Business and financial supports from BAY are expected to enhance ADLC’s market position in its core businesses and improve its financial flexibility. ADLC has developed the risk management model suitable for industrial machinery and equipment leasing business and internal audit which is in line with BAY’s policy guidelines which are supervised by the Bank of Thailand (BOT). -- End
Company Rating: Upgraded to A- from BBB+ Rating Outlook: Stable
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