TRIS Rating Co., Ltd. has affirmed the company rating of Nava Leasing PLC (NVL) at “BBB-” with “negative” outlook. The rating reflects NVL’s higher average funding costs compared with major competitors, weaker ability to generate profit, and the deteriorating asset quality after shifting focus on used car hire purchase. However, the rating is partially supported by the company’s adequate capital.
The “negative” outlook is based on concerns over NVL’s asset quality controls after the shift to used car financing. Although higher yields from used car loans will be able to alleviate the higher average funding costs, TRIS Rating is concerned that on a risk-return basis, the increase in interest yields may not be sufficient to cover the possibility of higher provisions from weakening loan quality. The rating of NVL may be lowered if the quality of its loans weakens and profitability deteriorates more than expected.
TRIS Rating reported that NVL is a small automobile hire purchase operator with a loan portfolio of only Bt2,578 million as of 31 March 2007. Intense price cutting and a higher cost of funds has made NVL uncompetitive in new car financing. The loan portfolio decreased from Bt3,638 million in 2004 to Bt2,300-Bt2,600 million through 2005 until the first quarter of 2007. Moreover, the company faced liquidity problems in 2005 when investors decided to rollover bills of exchange (B/E) of issuers with high credit profile only. After the current management team took charge in mid-2005, the liquidity problem was partially mitigated through medium-term borrowings and capital injections.
TRIS Rating said, new strategies and policies of NVL have been implemented since late 2005. The company has changed direction to focus on the used car hire purchase business. In 2006, NVL’s new loans were comprised of 91.8% used car loans and 8.2% new car loans. The non-performing loan (NPL) ratio (loans overdue more than three months divided by average loans) increased from 1.1% in 2005 to 3.0% in 2006 because of both an unfavorable economic environment and a greater portion of used car loans, which typically have more NPLs than new car loans. Going forward, NVL’s target customers will have lower credit profiles, making asset quality risk a new challenge. Because of exposure to higher risk of its target clients, NVL maintains an adequate capital base to absorb the potential losses. Although the ratio of shareholder’s equity to total assets declined from 46.9% in 2005 to 44.2% in 2006 and to 40.6% at the end of March 2007, this level is considered adequate. -- End
Nava Leasing PLC (NVL):
Company Rating: Affirmed at BBB-
Rating Outlook: Negative
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Copyright 2007, TRIS Rating Co., Ltd. All rights reserved. Any unauthorized use, disclosure, copying, republication, further transmission, dissemination, redistribution or storing for subsequent use for any purpose, in whole or in part, in any form or manner or by any means whatsoever, by any person, of the credit rating reports or information is prohibited. The credit rating is not a statement of fact or a recommendation to buy, sell or hold any debt instruments. It is an expression of opinion regarding credit risks for that instrument or particular company. The opinion expressed in the credit rating does not represent investment or other advice and should therefore not be construed as such. Any rating and information contained in any report written or published by TRIS Rating has been prepared without taking into account any recipient’s particular financial needs, circumstances, knowledge and objectives. Therefore, a recipient should assess the appropriateness of such information before making an investment decision based on this information. Information used for the rating has been obtained by TRIS Rating from the company and other sources believed to be reliable. Therefore, TRIS Rating does not guarantee the accuracy, adequacy, or completeness of any such information and will accept no liability for any loss or damage arising from any inaccuracy, inadequacy or incompleteness. Also, TRIS Rating is not responsible for any errors or omissions, the result obtained from, or any actions taken in reliance upon such information.
The “negative” outlook is based on concerns over NVL’s asset quality controls after the shift to used car financing. Although higher yields from used car loans will be able to alleviate the higher average funding costs, TRIS Rating is concerned that on a risk-return basis, the increase in interest yields may not be sufficient to cover the possibility of higher provisions from weakening loan quality. The rating of NVL may be lowered if the quality of its loans weakens and profitability deteriorates more than expected.
TRIS Rating reported that NVL is a small automobile hire purchase operator with a loan portfolio of only Bt2,578 million as of 31 March 2007. Intense price cutting and a higher cost of funds has made NVL uncompetitive in new car financing. The loan portfolio decreased from Bt3,638 million in 2004 to Bt2,300-Bt2,600 million through 2005 until the first quarter of 2007. Moreover, the company faced liquidity problems in 2005 when investors decided to rollover bills of exchange (B/E) of issuers with high credit profile only. After the current management team took charge in mid-2005, the liquidity problem was partially mitigated through medium-term borrowings and capital injections.
TRIS Rating said, new strategies and policies of NVL have been implemented since late 2005. The company has changed direction to focus on the used car hire purchase business. In 2006, NVL’s new loans were comprised of 91.8% used car loans and 8.2% new car loans. The non-performing loan (NPL) ratio (loans overdue more than three months divided by average loans) increased from 1.1% in 2005 to 3.0% in 2006 because of both an unfavorable economic environment and a greater portion of used car loans, which typically have more NPLs than new car loans. Going forward, NVL’s target customers will have lower credit profiles, making asset quality risk a new challenge. Because of exposure to higher risk of its target clients, NVL maintains an adequate capital base to absorb the potential losses. Although the ratio of shareholder’s equity to total assets declined from 46.9% in 2005 to 44.2% in 2006 and to 40.6% at the end of March 2007, this level is considered adequate. -- End
Nava Leasing PLC (NVL):
Company Rating: Affirmed at BBB-
Rating Outlook: Negative
----------------------------------------------------------
Copyright 2007, TRIS Rating Co., Ltd. All rights reserved. Any unauthorized use, disclosure, copying, republication, further transmission, dissemination, redistribution or storing for subsequent use for any purpose, in whole or in part, in any form or manner or by any means whatsoever, by any person, of the credit rating reports or information is prohibited. The credit rating is not a statement of fact or a recommendation to buy, sell or hold any debt instruments. It is an expression of opinion regarding credit risks for that instrument or particular company. The opinion expressed in the credit rating does not represent investment or other advice and should therefore not be construed as such. Any rating and information contained in any report written or published by TRIS Rating has been prepared without taking into account any recipient’s particular financial needs, circumstances, knowledge and objectives. Therefore, a recipient should assess the appropriateness of such information before making an investment decision based on this information. Information used for the rating has been obtained by TRIS Rating from the company and other sources believed to be reliable. Therefore, TRIS Rating does not guarantee the accuracy, adequacy, or completeness of any such information and will accept no liability for any loss or damage arising from any inaccuracy, inadequacy or incompleteness. Also, TRIS Rating is not responsible for any errors or omissions, the result obtained from, or any actions taken in reliance upon such information.