TRIS Rating Co., Ltd. has assigned the rating of ?BBB+? to the proposed issue of up to Bt6,000 million in senior debentures of Ratchthani Leasing PLC (THANI). At the same time, TRIS Rating has affirmed the company rating of THANI at ?BBB+?. The outlook remains ?stable?. The proceeds from the debenture issue will be used to refinance its outstanding debts. The ratings reflect the extensive experience of the management team in the used car financing business, the improvements in the company?s operating processes and risk management system. The ratings also reflect THANI?s improved financial performance and stronger market position, after receiving business and financial support from its major shareholder, Siam City Bank PLC (SCIB), which successfully merged with Thanachart Bank PLC (TBANK) on 1 October 2011. The ratings of THANI are enhanced from its stand-alone rating, because the company is currently classified as a subsidiary of TBANK?s financial conglomerate of the Bank of Thailand (BOT)?s consolidated supervision regulations. However, the ratings are mitigated by concerns over intense competition and loan portfolio quality, as THANI now focuses on making loans for commercial trucks. The ?stable? outlook reflects the expectation that THANI?s experienced management team, improving operating efficiency, and support from its parent company will enable THANI to expand its loan portfolio in the targeted products and markets. The loan quality is expected to be controlled and maintained at an acceptable level. In addition, support from its parent company is expected to continue, especially the provision of credit facilities.
TRIS Rating reported that after a recapitalization in late 2006, THANI became an affiliate of SCIB. Since this change, THANI?s market position has improved. THANI could leverage its stronger capital base and funding from SCIB to finance an expansion of its loan portfolio. Outstanding loans rose substantially since 2006, climbing at an average annual growth rate of 53% during 2007-2010. The total loan portfolio increased from Bt1,775 million in 2006 to Bt10,404 million in 2010. The portfolio continued to rise in 2011, reaching a value of Bt12,483 million at the end of December. As an affiliate of a commercial bank, THANI can receive a greater level of business and financial support from its parent bank, compared with a stand-alone financing company.
TRIS Rating said, THANI?s shareholding structure has been affected by the merger of SCIB and TBANK. After the merger, 48.4% of THANI?s shares were held by TBANK directly. At the beginning of November 2011, THANI recapitalized through a rights offering. TBANK exercised all its rights while only few other shareholders exercised, causing TBANK?s stake in THANI to increase to 65.2%. Therefore, THANI became TBANK?s subsidiary. TBANK now includes THANI as one of its subsidiaries on a full consolidation basis, consistent with the BOT?s consolidated supervision regulations. TBANK is the largest provider of auto financing loans in Thailand with a portfolio of outstanding auto loans worth approximately Bt276 billion as of December 2011. Although THANI?s main business overlaps with TBANK?s auto loan business, the two companies have targeted different markets. The latest capital injection by TBANK implies that TBANK intends to have THANI focus on market segments which TBANK has not yet penetrated. During the past year, TBANK has helped THANI develop its underwriting and collection processes to improve operational efficiency. Various risk management policies have been implemented to comply with the standards required by TBANK. THANI has been supervised by its parent bank and the parent bank?s regulator, the BOT.
The intense competition in the traditional segments of the used car loan markets has forced smaller firms such as THANI to seek new products and markets. THANI has been focusing its financial services on commercial truck loans since 2006. This segment constituted 55% of the company?s total hire purchase loan portfolio at the end of December 2011. THANI is trying to compensate for the increased risk in this new customer segment by charging higher interest rates, requiring high down payments, and calling for post-dated payment cheques. Although the loan quality of the commercial truck loan portfolio is currently acceptable, it will remain a challenge to earn stable long-term risk-adjusted returns, after provisions for non-performing loans (NPLs). TRIS Rating remains concerned over the quality of this type of loan, as THANI has had the most experience in providing loans for used passenger cars and pick-up trucks. THANI?s ratio of NPLs to average loans has fallen continuously from 5.9% in 2008 to 2.8% as of March 2011. The improvement in the loan quality ratio was partly due to the significant expansion of the loan portfolio during the past three years. The ratio rose slightly to 3.0% at the end of September 2011. As with other auto financing companies, THANI was affected by the floods in Thailand during the last quarter of 2011. The NPL ratio to total loans rose to 4.2% at the end of 2011; higher loan loss provisions reduced profitability.
Intensifying competition in the used car loan markets constrained THANI?s efforts to improve its interest yields, although the commercial truck loan portfolio generates better yields. The lower cost source of funds available from the parent bank has helped THANI maintain its interest spread. Since 2008, THANI has benefitted from two factors: economies of scale and changes in an accounting policy regarding the amortization and recognition of commission expenses. These two factors have improved THANI?s financial performance as operating expenses rose more slowly than revenues. The ratio of operating expenses to total income was 26.7% in 2009, down from above 30% in the years before 2008. The ratio nosedived to 19.8% in 2010 and decreased to only 12.2% in 2011.
THANI reported a net profit of Bt204 million in 2010, almost double the profit of Bt109 million in 2009. Net profit for the first three quarters of 2011 was Bt191 million, up 30.1% from the same period in 2010. The floods affected the company?s overall performance in 2011, as provisioning expenses rose toBt126 million, from Bt40 million in 2010. As a result, net profit for 2011 was Bt205 million, nearly the same level as in 2010. The higher provisioning expenses improved the ratio of allowance for doubtful accounts to total loans to 2.4% in 2011 from 2.2% in 2010. The ratio of return on average assets (ROAA) improved to 2.5% in 2010 from 1.9% and 1.8% in 2009 and 2008. The ratio dropped to 1.9% in 2011. THANI?s capital base has deteriorated due to the aggressive debt-funded portfolio expansion. The deterioration came despite a rise in paid-up capital from the exercise of warrants held by SCIB in late 2009, and despite improved operating performance in 2009 and 2010. The ratio of shareholders? equity to total assets sagged from 31.4% in 2007 to 13.4% in 2010 and 12.2% at the end of September 2011. The latest recapitalization, in November 2011, strengthened the ratio to 17.2% at the end of 2011. This level is adequate for THANI?s expansion plans for the next two to three years, under TRIS Rating?s scenario. THANI now has greater financial flexibility after becoming an affiliate of SCIB, which has since been merged into TBANK. At the end of December 2011, approximately 75% of THANI?s total borrowings were from its parent bank. The proceeds from the proposed debenture issue will enable THANI to refinance its existing debts. This will permit TBANK to provide more financial support to THANI, said TRIS Rating. ? End
Company Rating: Affirmed at BBB+ Issue Rating: Up to Bt6,000 million senior debentures due within 2017 BBB+ Rating Outlook: Stable
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