Bangkok--23 May--TRIS Rating
TRIS Rating has assigned a “BBB+” rating to the proposed issue of up to Bt2,000 million in senior debentures of Ratchthani Leasing PLC (THANI). At the same time, TRIS Rating has also affirmed the company and existing senior debenture ratings of THANI at “BBB+”. The outlook remains “stable”. The proceeds from the new debentures will be used to refinance THANI’s outstanding debts and expand its loan portfolio. The ratings reflect the extensive experience of the management team in the used car financing business, plus the continuous improvements in the company’s operating processes and risk management systems. The ratings also reflect THANI’s improved financial performance and stronger market position, after receiving business and financial support from its major shareholder, Thanachart Bank PLC (TBANK). 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 under the Bank of Thailand’s (BOT) consolidated supervision regulations. The ratings are mitigated by concerns over intense competition and the quality of THANI’s loan portfolio, as THANI now focuses on making loans for commercial trucks. This type of loan is considered more sensitive to any adverse change in economic conditions. The “stable” outlook reflects the expectation that THANI’s experienced management team, improving operating efficiency, and support from its parent bank will enable THANI to expand its loan portfolio in the market segments it has targeted. The loan quality is expected to be controlled and maintained at an acceptable level. In addition, the support from its parent bank is expected to continue, especially the provision of credit facilities.
THANI has been a subsidiary of TBANK since 2011, after the merger of Siam City Bank PLC (SCIB) and TBANK, and a recapitalization. TBANK now includes THANI as one of its subsidiaries on a full consolidation basis, consistent with the BOT’s consolidated supervision regulations. Although THANI’s main business overlaps with TBANK’s auto loan business, the two companies have targeted different product and market segments. TBANK intends to have THANI focus on market segments which TBANK has not yet penetrated. TBANK has helped THANI develop its underwriting and collection processes to improve operational efficiency. THANI has implemented a number of risk management policies to comply with the standards required by TBANK. THANI has been closely supervised by its parent bank and indirectly supervised by the BOT through the parent bank.
THANI has been focusing its efforts on the commercial truck segment since 2006. Loan made to this segment constituted 68% of the company’s total hire purchase loan portfolio at the end of December 2012. THANI compensates 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. Commercial truck loans are considered sensitive to adverse changes in economic conditions. TRIS Rating remains concerned over the quality of this type of loan despite THANI’s experience in providing loans for used passenger cars and pick-up trucks.
After THANI became an affiliate of SCIB in 2006, THANI’s market position improved. THANI could leverage its stronger capital base and use funding from its parent bank to finance an expansion of its loan portfolio. Outstanding loans have risen 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, climbing to Bt12,483 million at the end of 2011. THANI has more financial flexibility after becoming TBANK’s subsidiary. THANI can receive a greater level of business and financial support from its parent bank. This support has enhanced its competiveness and underpinned its expansion efforts. THANI has improved steadily its market position, as shown by the continued growth in its loan portfolio. The value of the portfolio stood at Bt19,218 million at the end of 2012, a 54% increase from the 2011 level. The loan portfolio continues to grow, reaching Bt21,788 million at the end of March 2013.
THANI’s ratio of non-performing loans (NPLs) to total loans fell continuously from 2008-2011. The ratio dropped from 4.9% in 2008 to 2.8% as of September 2011. The improvement in the loan quality ratio was partly due to the significant expansion of the loan portfolio. However, as with other auto financing companies, THANI was affected by the floods in Thailand during the last quarter of 2011. Theratio of NPLs to total loans soared to 3.7% at the end of 2011. The NPL ratio improved substantially to 2.3% at the end of December 2012 and continued lower to 2.2% at the end of March 2013.
THANI reported a net profit of Bt204 million in 2010, almost double the profit of Bt109 million in 2009. Net profit stayed steady at Bt205 million in 2011 due to the higher loan loss provision expenses, which came after the floods. The provision expenses rose to Bt126 million in 2011, from Bt40 million in 2010, mainly to serve as a cushion for higher NPLs. Net profit dramatically improved in 2012, in line with the substantially rise in the size of the loan portfolio. Net profit was Bt489 million in 2012, a 138.9% jump from the amount of net profit in 2011. The return on average assets (ROAA) improved to 3.1% in 2012 from 1.9% in 2011. The improvement was due to a decline in provision expenses, plus economies of scale in operating costs, and a lower cost source of funds. Provisions for possible loan losses fell to Bt81 million in 2012 from Bt126 million in 2011. Operating efficiency improved due to economies of scale as the loan portfolio grew and because of support from TBANK. The ratio of operating expenses to total income reduced to 19.8% in 2010 from 26.7% in 2009. The ratio continued to decrease in 2011, falling to 13.2%. The ratio held at 13.3% in 2012. Intensifying competition has constrained interest yields. However, THANI now has a lower cost source of funds because it can secure funding from its parent bank. THANI can also secure less costly funds from the capital market, through the issuance of debentures and bills of exchange (B/Es). The lower cost sources of funds have helped THANI to raise its interest spread to 3.5% in 2012 from 2.9% in 2011.
THANI’s capital base has deteriorated due to the aggressive debt-funded portfolio expansion. The deterioration came despite improved operating performance since 2009 and despite a rise in paid-up capital from the exercise of warrants held by SCIB in late 2009. 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. However, the ratio of shareholders’ equity to total assets dropped to 13.0% at the end of 2012. 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 TBANK. THANI refinanced most of its existing debts, both from TBANK and other financial institutions, with the debentures it issued in 2012. At the end of 2012, THANI had no borrowings from TBANK. THANI has secured funding sources from TBANK to meet its liquidity needs.
Ratchthani Leasing PLC (THANI)
Company Rating: BBB+
Issue Ratings:
THANI144A: Bt2,000 million senior debentures due 2014 BBB+
THANI154A: Bt1,500 million senior debentures due 2015 BBB+
THANI164A: Bt2,500 million senior debentures due 2016 BBB+
THANI16NA: Bt3,000 million senior debentures due 2016 BBB+
Up to Bt2,000 million senior debentures due within 2017 BBB+
Rating Outlook: Stable