Bangkok--Jun 24--Fitch Ratings
Fitch Ratings (Thailand) has today assigned AEON Thana Sinsap (Thailand) Plc’s (“AEONTS”) unsubordinated debentures of up to THB500 million with a maturity of three years and unsubordinated debentures of up to THB2.5 billion with a maturity of no more than five years a National Long-term rating of ‘A-(A minus)(tha)’.
The ratings reflect AEONTS’s niche market position, strong earnings growth and profitability in retail financing in Thailand, solid capital position and partial support from a strong parent company. They also take into account concerns on asset quality deterioration due to AEONTS’s high growth strategy and the volatility of consumer finance in the low-income segment
On 9 June 2005, Fitch revised the rating Outlook on AEONTS to Negative from Stable following an upward trend in delinquencies and a downward trend in credit card payment rates over the past three years. Fitch said delinquencies may rise in 2005 due to rising costs of living, slower economic growth and higher consumer indebtedness. Further sustained rises in delinquencies will likely result in a downgrade. Stricter regulatory controls could also affect its growth and profitability. On the other hand, one of the keys to AEONTS’ strong performance to date has been disciplined management, particularly of approvals and collections, which could mitigate these risks.
AEONTS’s loan portfolio has expanded substantially in the past four years, due to aggressive growth in its core hire purchase, credit card and personal loan businesses. Outstanding receivables (adjusted for securitisation) grew by 39% in 2004 (fiscal year ended February 2005), although new sales were much higher for example in fiscal year 2004, actual new sales generated were more than THB39 billion vs. end-year receivables of only THB16 billion. It reported net income of THB784 million in 2004, a significant improvement from the prior year THB623m mainly on the back of strong revenue growth from credit cards. However, as interest rates on credit cards remain capped at 18%, higher funding costs and rising delinquencies may affect profitability in 2005/6.
Using average end-period receivables, delinquencies (before write-offs) came in at 9% for the year ended February 2005. Due to the high payment rate/short revolving nature of the portfolio, using average end-period receivables rather than a larger base tends to slightly overstate delinquencies. Also due to seasonality, delinquencies tend to rise in February-May. Nonetheless, there has been a marked increase in underlying delinquency trends and a fall in payment rates since 2001. Very high growth and expansion into the provinces, especially in the more volatile credit card portfolio, and weakening consumer confidence, may see delinquencies rise further. Higher consumer indebtedness and rising costs of living are increasing the risks of asset quality deterioration, particularly for AEONTS’ low-income market.
AEONTS securitised THB2 billion of its hire purchase receivables in February 2004 and THB3bn of its credit card receivables in February 2005. The impact of the securitisation on profitability and asset quality should generally be neutral and positive for liquidity and capital. While AEONTS is largely quarantined from the securitised portfolios, there is still some exposure in the form of THB1.3bn of subordinated loans.
Total equity at end-February stood at THB2.5bn. AEONTS’s equity-to-net receivables ratio stood at 16% at end-February 2005. While internal capital generation is currently strong, this may be affected by a high dividend payout ratio and rising delinquencies.
Contact: Chaiyapat Paitoon, Vincent Milton, Bangkok, Tel: +662 655 4762/4759; David Marshall, Hong Kong +852 2263 9963.
Note to Editors: Fitch’s National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated ‘AAA’ and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as ‘AAA(tha)’ for National ratings in Thailand. Specific letter grades are not therefore internationally comparable.
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