Bangkok--21 Jun--Fitch Ratings
Fitch Ratings (Thailand) has today downgraded the National rating of Primus Leasing Company Limited’s (“Primus”) guaranteed notes issued under its medium-term note programmes and its guaranteed bills of exchange to ‘BBB-(tha) (BBB minus (tha)) from ‘BBB+(tha)’. The Outlook remains Negative. This action follows Fitch’s downgrade of the Issuer Default Rating (“IDR”) of Ford Motor Credit (“Ford Credit”) to ‘B+’ from ‘BB’. Primus is a Thai subsidiary of Ford Credit of the US; Ford Credit is also a guarantor of Primus’ debt. The National ratings of Primus are based on the full, irrevocable and unconditional guarantee given by Ford Credit and the creditworthiness of Primus’s ultimate parents, Ford Motor Company (“Ford”) and Ford Credit, both of the US.
Thailand’s Long-term local currency IDR is currently ‘A’ with a Stable Outlook while Primus’s issue rating of ‘BBB-(tha)’ (BBB minus (tha)) has a Negative Outlook. Any further downgrade in the IDR of Ford Credit, or any further upgrade to the Thai sovereign, will potentially affect the National rating of Primus. A rating Outlook generally indicates the direction in which a rating is likely to move over a one to two-year period.
As a financing arm supporting domestic vehicle sales, Primus is strategically important to Ford’s operations in Thailand. Its hire purchase receivables fell by 14% in 2005 due to aggressive competition. While the average yield on hire purchase loans continued to decline, the cost of funds rose on the back of higher interest rates, leading to a fall in net interest margins to 3.9% in 2005 from 4.8% the prior year. However, profitability remains relatively high with ROAA of 1.4% and ROAE of 24%. Net income in 2005 rose significantly due mainly to the release of reserves and decreased tax expenses. The company’s revenues still depend on sales of captive car brands, namely Ford, Mazda, Land Rover and Volvo. While the number of units sold in 2005 increased, Ford’s overall market share (including Mazda, Land Rover and Volvo) fell to 6.1% from 6.4% the previous year. The introduction of new models from Ford in 2006 may help boost sales, though the Japanese car producers remain dominant in Thailand.
Primus’s asset quality remained strong, although combined non-performing receivables and write-offs increased to THB135.9m at end-2005 from THB95.8m at end-2004. The delinquency (including write-offs) ratio rose to a still low 1% at end-2005 from 0.6% at end-2004 as a result of a more aggressive financing strategy in the midst of intensified competition. Its loan loss reserves stood at more than 2x of its non-performing receivables at end-2005. Primus’s rapid debt-funded receivables growth resulted in high leverage ratios, although the ratio fell to 12.6x equity at end-2005 from 19.4x equity at end-2004. Fitch’s concerns over the company’s high leverage are mitigated by the explicit guarantee of the notes by Ford Credit.
Note to Editors: Fitch’s National ratings provide a relative measure of creditworthiness for rated entities in countries with sub- or low-investment grade international sovereign 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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