Bangkok--Sep 2--TRIS Rating
TRIS Rating Co., Ltd. has downgraded the company rating of Nava Leasing PLC (NVL) to “BBB-” from “BBB” and has also downgraded the rating of its Bt1,200 million senior secured debentures (NVL063A) to “BBB” from “BBB+” with “negative” outlook. The ratings reflect NVL’s weak liquidity position because there is a significant amount of short-term debt that will be matured within the next four months. All of NVL’s borrowings are short-term which results in a significant asset-liability mismatch. The ratings also take into consideration the intense competition in the hire purchase industry, NVL’s high average cost of funds compared with other major players, and its customer concentration risk. Moreover, an uncertain economic situation, continuously high oil prices, and rising interest rates may negatively impact the demand for automobiles and affect installment payments from customers. The new management team’s success in changing NVL’s business strategy to focus on the used car market and to build up its network and business in provincial areas needs time to be proved.
While the “negative” outlook is based on the liquidity constraint during the next six months. If NVL cannot show concrete evidence of liquidity back-up for the short-term debts coming due, the rating will be further downgraded.
TRIS Rating reported that NVL is a small automobile hire purchase company compared with major leasing companies and financial institutions. A higher cost of funds compared with its peers has made NVL less competitive in the retail business, therefore NVL expanded to tap corporate customers, which has raised concerns over the company’s customer concentration risk. The new management team changed the company’s policy to focus on used car hire purchase loans, which provide higher yields. As NVL’s future target customers have lower credit profiles than new car hire purchase customers, NVL will face asset quality risk. The new management team took charge in mid-2005. Although the new management team has extensive experience in automobile financing and automobile distribution, the success remains to be seen.
TRIS Rating said that NVL’s financial status clearly showed the mismatch of its assets and liabilities. The company has huge debt repayments scheduled in September 2005 (Bt640 million) and December 2005 (Bt450 million). Management plans to refinance the debts coming due mostly with bank borrowings and partly from equity raising. End.