Bangkok--3 Oct--TRIS Rating
TRIS Rating Co., Ltd. has affirmed the company rating of Ayudhya Development Leasing Co., Ltd. (ADLC) at “BBB+” with “stable” outlook. The rating reflects ADLC’s strong market position in the industrial machinery and equipment leasing industry, an experienced management team, and its ability to maintain low operating costs. The rating also takes into consideration the business and financial support from its major shareholder, Bank of Ayudhya PLC (BAY). However, these strengths are partially offset by customer concentration risk and the credit profiles of its target customers, which are relatively weak compared with customers of commercial banks.
The “stable” outlook reflects TRIS Rating’s expectation that ADLC’s experienced management team will be able to expand its portfolio, continuously generate profit, and maintain low operating costs. The rating is based on the assumption that BAY will continue to provide both business and financial support to ADLC.
TRIS Rating reported that in 2005, ADLC’s loan portfolio (including assets for lease) increased to Bt4,092 million, up 13.7% from Bt3,599 million in 2004. Net income was Bt105 million in 2005, more than triple the Bt30 million reported in 2004. The improving financial performance was mainly driven by income from new performing accounts originated during 2004-2005, which have been quite profitable. With a narrow customer base and high average contract size, ADLC is able to prudently manage operating costs. During 1999-2004, the ratio of operating expenses to total income was approximately 14% compared with 24% for its peers.
TRIS Rating said, ADLC continues to have a small customer base because the lease financing industry in Thailand has remained in a nascent stage, especially when compared with advanced economies such as the US, Germany and Japan. The small customer base means ADLC’s revenue sources are less diverse compared with traditional commercial banks. Generally, lessees prefer to finance assets with leases as the complimentary source to get more unique benefits, such as tax savings, off-balance sheet effects and cash flow improvement, than are available through traditional commercial bank loans. However, for some small- and medium-sized entities that may not be able to obtain enough credit from commercial banks because they lack strong audited financial statements or have few fixed assets to pledge as collateral, lease financing is an alternative financing source. The structure of lease financing and ADLC’s credit policies, such as requiring deposits for lease rentals, securing buy-back guarantees from suppliers, and assigning payments from lessees’ customers, will partly mitigate losses from defaulting accounts. In addition to small- and medium-sized customers, ADLC also provides loans to large corporations by offering customized leasing packages.
ADLC is a leading leasing company that concentrates on industrial machinery and equipment leases. The company was established in 1991 as a joint venture of three financial institutions: BAY, International Finance Corporation (IFC), and Korea Development Financial Corporation (KDFC), formerly known as Korea Development Leasing Corporation (KDLC), the largest leasing company in South Korea. After IFC and KDFC sold their shares in ADLC to BAY in 2005, BAY Group’s ownership in ADLC increased from 57% to the current level of 77%. Currently, BAY is in the process of purchasing more ADLC’s shares from other shareholders as ADLC will be BAY’s strategic subsidiary for the leasing business to fulfill its strategy to be a universal bank. At the end of June 2006, credit facility from BAY is the largest funding source of ADLC. It will take time to use BAY’s extensive resources, such as its branch network, to create business synergies with BAY because the leasing business requires specific knowledge which is different from normal banking loan approvals, said TRIS Rating.