Bangkok--7 Feb--TRIS Rating
TRIS Rating Co., Ltd. has affirmed the rating of Ratchthani Leasing PLC’s (THANI) Bt1,000 million senior secured debentures (TANI078A) at “BBB” with “stable” outlook. The rating reflects the extensive experience of THANI’s management team in the used car hire purchase business, long-term relationships with dealers, and potential support from a new major shareholder. However, the rating is constrained by the company’s deteriorating asset quality and the intense competition in the hire purchase market. The issue rating takes into consideration the value of THANI’s hire purchase receivables for automobiles pledged as collateral, which are worth at least 135% of the outstanding debentures. Should the receivables fall below the 135% mark, THANI must make up the shortfall by holding cash equal to the value of the debentures not secured by the receivables.
The “stable” outlook reflects TRIS Rating’s belief that THANI should be able to expand its portfolio after the completion of the capital injection plan. Its current strong capital base will be sufficient to absorb the uncertain quality of its new types of assets.
TRIS Rating reported that during 2006, THANI reduced its liquidity risk by increasing equity, restructuring its borrowings, and replacing short-term bills of exchange (B/E) with medium-term loans from commercial banks. The new funding structure helps THANI better match its assets and liabilities. However, the higher average funding cost hurts profitability. The capital injection plan was completed in September 2006. THANI’s loan portfolio decreased from Bt2,271 million at the end of 2005 to Bt1,785 million at the end of September 2006 because the company had to resolve its funding problem. THANI’s paid up capital increased from Bt402 million in 2005 to Bt667 million at the end of September 2006. Siam City Bank PLC (SCIB) injected Bt305 million by purchasing 265 million new common shares at Bt1.15 per share. The capital injection made SCIB the largest shareholder of THANI with 39.8% ownership. As an affiliate of SCIB, THANI will help fulfill the universal banking policy of SCIB and SCIB is expected to provide a reliable source of liquidity. However, the benefit from leveraging SCIB’s resources needs time to be proved.
THANI plans to aggressively expand its portfolio in 2007. However, competition for used car hire purchase lending is intense because many hire purchase operators aggressively entered into used car market after commercial banks or their subsidiaries, which have lower funding costs and extensive branch networks, moved into the new car hire purchase industry. THANI is moving to other markets such as commercial truck loans which generate higher yields than small vehicles. THANI is trying to mitigate the higher risk of its new customers by charging high interest rates, requiring high down payments, and calling for post-dated payment cheques. As THANI is new to the commercial truck market, TRIS Rating sees it remains a challenge for the company to earn superior risk-adjusted returns after provisions for non-performing assets.