TRIS Rating Co., Ltd. has assigned the rating for EASY BUY PLC’s (EASY BUY) proposed issue of up to Bt1,000 million in guaranteed debentures at “AA”. At the same time, TRIS Rating has affirmed the company rating of EASY BUY at “BBB” and has affirmed EASY BUY’s current guaranteed debenture ratings at “AA”. The outlooks for both the company and issue ratings remain “negative”. The company rating reflects the strong market position of EASY BUY in the Thai non-bank consumer finance businesses and strong supports from its parent and major shareholders. The rating is constrained by its low capitalization and its customer credit sensitivity to an unfavourable economic and operating environment, which might limit its business growth and profitability, and deteriorate asset quality.
The issue ratings reflect a full guarantee by its parent company, ACOM Co., Ltd., a company rated “A3” with a “negative” outlook by Moody’s Investors Service (Moody’s) and “BBB+” with a “negative” outlook by Standard & Poor’s (S&P). The ratings of ACOM are supported by its strong market position in the consumer finance business, a sound and experienced management team, more diversified businesses, and strong alliance with Mitsubishi-UFJ Financial Group Inc. (MUFG). MUFG currently holds a 40.04% stake in ACOM and has included ACOM as its consolidated subsidiary since 25 December 2008. These strengths are constrained by a fiercely competitive environment and regulatory risk, which negatively affect the performance of non-bank consumer finance companies in Japan.
TRIS Rating said, the “negative” outlook for the company rating of EASY BUY reflects the expectation that the company’s financial performance will likely be impacted by unfavourable operating environment, and the company still has low capital base to absorb downside risk from adverse changes in the operating climate. To maintain the current rating, TRIS Rating expects the company to raise a sizable amount of capital as a cushion for equity deterioration due to unexpected losses in the future. The “negative” outlook for the issue ratings reflects the remained uncertainty of financial performance of ACOM, the guarantor, in FY2010 which is highly pressured by higher provisioning expenses for both possible loan losses and refunds of overpaid interests.
Under the guarantee agreement, which is governed by the Japanese laws, the guarantor irrevocably and unconditionally guarantees to promptly make full payments of obligations of the rated debentures in the event that EASY BUY does not pay. The guarantee’s obligations will be reinstated if the payments made by EASY BUY are recaptured as a result of the issuer filing bankruptcy. Furthermore, if there is any merger or consolidation of ACOM, the successor of ACOM shall assume these guaranteed obligations. If the guarantor fails to pay the amount due after receiving notice, the debentureholders’ representative can commence legal action against the guarantor in the commercial court, in Japan, for the defaulted amount. The obligations of the guarantor under this guarantee agreement rank equally with other unsecured and unsubordinated debts of the guarantor.
TRIS Rating reported that as of March 2009, the loan receivables of EASY BUY made up 4.3% of ACOM’s consolidated receivables, up from 3.7% at the end of FY2006 (ending March 2006). The amount of EASY BUY’s liabilities guaranteed by ACOM totalled 54,675 million yen as of March 2009, representing 12% of ACOM’s total shareholders’ equity, up from only 1% in FY2004. EASY BUY is ACOM’s first overseas subsidiary in Southeast Asia, and figures significantly in ACOM’s strategy to be a major regional player in the consumer finance industry. ACOM has shown a strong commitment to EASY BUY, providing financial and business support by passing along technology and business practice know-how, as well as developing new products for the Thai market.
TRIS Rating said, the experience of over 10 years in the non-bank consumer finance industry has provided EASY BUY with a sufficient track record and good brand recognition. Strong financial and business support from the parent company is crucial for EASY BUY’s future market position and to sustain growth. Though the nature of its business, providing small loans per customer to a large number of customers, helps diversify risk, the company is still exposed to credit risk as the credit profiles of its customers are generally lower than commercial bank’s customers. In addition, the company is also exposed to regulatory risk as regulators tend to protect the benefits of consumers.
Asset quality is a crucial factor of EASY BUY’s credit profile as the company has been pressured by its low capitalization and changing business environment. EASY BUY has adopted many of ACOM’s business operation and risk management tools, including a modern credit-scoring model and effective vendor and information management systems, plus ACOM’s loan collection methods and standards to ensure asset quality control. However, EASY BUY had high provisioning costs (bad debts and doubtful accounts) during 2005-2007 due to high non-performing loans (NPL) in the motorcycle hire-purchase business. NPLs were also high during a controversial period when a new interest rate cap was implemented. As a result, EASY BUY reported a loss of Bt113 million in 2006 and Bt95 million in 2007. EASY BUY’s net income turned to be positive, having net profits of Bt310 million in 2008 and Bt44 million for the first three months of 2009. The turnaround performance was mainly came from the sustained growth of personal loan business with efficient control of operating cost, even the provisional cost remained high from unfavorable economic environment. The company’s capitalization was relatively weak. EASBY BUY’s total shareholders’ equity to total assets substantial fell to 5.70% in 2007 from 7.16% in 2006, before rising to 6.50% in 2008 and 6.70% at the end of March 2009. -- End
Company Rating: Affirmed at BBB Rating Outlook: Negative Issue Ratings: EB108A: Bt320 million guaranteed debentures due 2010 Affirmed at AA EB108B: Bt100 million guaranteed debentures due 2010 Affirmed at AA EB128A: Bt125 million guaranteed debentures due 2012 Affirmed at AA EB128B: Bt2,710 million guaranteed debentures due 2012 Affirmed at AA EB128C: Bt3,500 million guaranteed debentures due 2012 Affirmed at AA Up to Bt1,000 million guaranteed debentures due 2013 AA Rating Outlook: Negative
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