TRIS Rating Assigns “A+” Rating to AYCAL’s New Bt7,300 Million Debts with “Stable” Outlook, Replacing Bt5,000 Million

TRIS Rating Co., Ltd. has affirmed the company rating of Ayudhya Capital Auto Lease PLC (AYCAL) at “A+”. At the same time, TRIS Rating has assigned the rating of AYCAL’s proposed issue of up to Bt7,300 million in senior debentures at “A+”. The new issue rating replaces the “A+” rating previously assigned by TRIS Rating on 7 October 2009 for AYCAL’s debentures of up to Bt5,000 million due within 2014, as AYCAL decides to increase the issue size by Bt2,300 million. The outlook remains “stable”. The ratings are enhanced by AYCAL’s standalone rating as the company is a core strategic subsidiary of Bank of Ayudhya PLC (BAY) in the automobile hire purchase business, and helps fulfill BAY’s universal banking services. AYCAL’s standalone rating is based on the company’s strong market position in the automobile and motorcycle hire purchase business, experienced management team with a proven track record and its good risk management system. However, these strengths are partially offset by intense competition in automobile and motorcycle hire purchase businesses and an unfavourable operating environment, which may adversely impact AYCAL’s business expansion, financial performance and asset quality in the future.

The “stable” outlook reflects the expectation that AYCAL’s business direction continues to closely align with BAY Group’s business strategy, and the company continues to get strong support from BAY. The outlook also considers the ability of the management team to sustain strong market position in the auto and motorcycle hire purchase businesses. With experienced management, good risk management system and strong support from BAY, TRIS Rating expects the company would be able to maintain assets in good quality and improve the financial performance in the medium term.

TRIS Rating reported that AYCAL became BAY’s wholly-owned subsidiary in February 2008, following BAY’s business reorganization after GE Capital International Holdings Corporation (GECIH) purchased a 32.93% stake in BAY. AYCAL’s total receivables as of June 2009 accounted for 17% of BAY’s consolidated loan outstanding. Net income of AYCAL for the first half of 2009 contributed 38% to BAY’s consolidated net income for the same period. Business and financial supports from BAY are expected to enhance AYCAL’s market position in its core businesses and improve its financial flexibility. AYCAL is one of the subsidiaries getting priority for financial supports, as reflected in the proportion of outstanding amount of lending from BAY to AYCAL at 74% of BAY’s total lending to subsidiaries as of June 2009 (up from 26% as of June 2008).

TRIS Rating said, AYCAL is able to maintain the leading position despite the slowdown in auto hire purchase market as a consequence of the downturn of Thailand’s automobile industry. The company is the second largest among 20 auto hire purchase operators in the TRIS Rating’s database, with Bt91,570 million of outstanding loans or a 13% market share as of June 2009. Also, the company is the second largest motorcycle hire purchase operator, having outstanding loans of Bt3,352 million as of June 2009. With 16 years of experience in the industry, AYCAL has developed a proficient management team and business platform that has enabled the company to compete successfully. As part of the reorganization of BAY in late 2008, AYCAL became a sole subsidiary for BAY’s auto loan business, providing hire purchase financing for the purchase of new cars, used cars, and motorcycles. AYCAL also renders secured personal loans services through auto sales and lease back, under the brand “Car4Cash”.

AYCAL has applied the risk management model from its parent company’s practice. Both AYCAL and BAY, therefore, are regulated under the same standard criteria set by the Bank of Thailand. Due to good credit risk management and an efficient collection system, AYCAL had good asset quality, despite its high risk portfolio. As of June 2009, non-performing loans (NPL), defined as delinquent loans with more than three months overdue, was unchanged from around 2.0% of total outstanding loans as of December 2008. This figure is considered low when compared with peers in auto and motorcycle hire purchase industry.

AYCAL’s net interest income for 2008 was Bt5,731 million, lower than the Bt6,076 million reported in 2007. Profitability slightly declined in 2008. Return on average assets and return on average equity decreased to 1.74% and 15.33%, respectively, in 2008 from 2.27% and 22.03% in 2007. The shareholders’ equity to total asset ratio declined to 10.90% at the end of 2008 from 11.95% in 2007, as the result of the consolidation of hire purchase loan portfolio from BAY’s subsidiaries. The level of capital at AYCAL is lower than other hire purchase operators in the high risk market segments. However, TRIS Rating expects the level of capital to rise gradually from internal growth of operating income in the future. -- End

Company Rating: Affirmed at A+ Issue Rating: Up to Bt7,300 million senior debentures due within 2013 A+ Rating Outlook: Stable Copyright 2009, 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.

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