TRIS Rating affirms the company rating on Ayudhya Capital Auto Lease PLC (AYCAL) and the ratings on its outstanding senior unsecured debentures at ?AA+? with a ?stable? rating outlook. At the same time, TRIS Rating assigns the ?AA+? rating to AYCAL?s proposed issue of up to THB1.5 billion in senior unsecured debentures and an over-allotment of up to THB1.5 billion maturing within five years. The proceeds from the new debenture issuance will be used for debt repayment and working capital.
The ratings reflect AYCAL?s status as a highly strategic subsidiary of Bank of Ayudhya PLC (BAY), rated ?AAA? with a ?stable? outlook by TRIS Rating. The ratings take into consideration the business support and financial support AYCAL receives from BAY. According to TRIS Rating?s ?Group Rating Methodology?, the company rating on AYCAL is assigned one notch below the company rating on BAY, based on the assessed group status.
The company maintains its strong market position as the leading operator of motorcycle hire purchase loans, thanks to the business and financial support the company receives from BAY despite the highly competitive environment in the industry. Other key strengths are strong capital base, ample liquidity, and well managed asset quality.
AYCAL?s 2021 operating results were slightly lower than our expectations given the economic fallout from the Coronavirus Disease 2019 (COVID-19) pandemic which led to new loan contraction in 2021. At the end of 2021, outstanding loans totaled THB44.8 billion, down by 6.3% year-on-year (y-o-y). Net income for 2021 was THB2.2 billion, 15% lower y-o-y. The drop in net income was caused by a combination of a slowdown in new lending and higher credit cost. In 2021, credit cost rose to 2.7% of average loans from 2.0% and 1.4% in 2020 and 2019, respectively. The ratio of non-performing loans to total loans (NPL ratio) dropped to 1.29% at the end of 2021 from 1.73% at the end of 2020. This is due to the high NPL write-offs in 2021.
Looking forward, the company?s asset quality could potentially weaken similar to peers given the still-weak economy and high inflation. Its loan yield is also likely to be under pressure due to fierce competition and the regulatory limit on interest rates for motorcycle hire purchase loans at 23%. Nevertheless, the impact on yield should be less for AYCAL compared to peers given the greater mix of loans for high-engine capacity motorcycles whose yields are already below the imposed ceiling. That said, the yield limit coupled with higher funding cost and credit cost may constrain company?s future performance and profitability.
RATING OUTLOOK
The ?stable? outlook reflects our expectation that AYCAL?s business direction will remain closely aligned with BAY?s strategy. The outlook also assumes that AYCAL?s status as a highly strategic subsidiary of BAY will be maintained and that it will continue to receive strong support from its parent bank.
RATING SENSITIVITIES
The ratings and/or outlook could be upgraded if AYCAL?s status to the group is elevated to a higher level, although this is unlikely in the foreseeable future in our view. In contrast, the ratings/outlook could be revised downward should BAY?s ratings/outlook be downgraded, or TRIS Rating takes the view that AYCAL?s status in the BAY Group has weakened materially.
RELATED CRITERIA
- Issue Rating Criteria, 15 June 2021
- Group Rating Methodology, 7 September 2022
- Nonbank Financial Institution Methodology, 17 February 2020
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Ayudhya Capital Auto Lease PLC (AYCAL)
Company Rating: AA+
Issue Ratings:
AYCAL22NA: THB1,500 million senior unsecured debentures due 2022 AA+
AYCAL232A: THB2,000 million senior unsecured debentures due 2023 AA+
AYCAL23DA: THB1,300 million senior unsecured debentures due 2023 AA+
AYCAL245A: THB3,000 million senior unsecured debentures due 2024 AA+
AYCAL265A: THB1,000 million senior unsecured debentures due 2026 AA+
Up to THB1,500 million senior unsecured debentures
and an over-allotment of up to THB1,500 million due within 5 years AA+
Rating Outlook: Stable