Pembangunan Leasing Corporation’s (PLC) Guaranteed Notes Issuance Programme (GNIP) rating is reaffirmed to reflect the strength of the unconditional and irrevocable guarantee provided by Bank Pembangunan & Infrastruktur Malaysia Berhad (BPIMB). BPIMB’s A-rating from MARC which is higher than PLC’s stand-alone corporate debt rating, reflects its strategic importance in the socio-economic development of the country and its 99.9% government ownership. These have translated into a continued strong funding base and capital adequacy position of the bank. MARC remains concerned over the sustainability of PLC’s business growth following heightened competition posed by the on-going merger/privatization of finance companies, and reduced public sector spending which may adversely affect its factoring business.

PLC is principally involved in the provision of hire purchase (HP), leasing and factoring facilities. In FY2003, the Group’s total gross receivables declined by 6.1% to RM320.8 million, due to the 4.8% and 33.2% contraction in gross HP and factoring receivables respectively. During the year, the financing portfolio remained concentrated in manufacturing (27.2%), wholesale and retail trade (17.3%), as well as transport and storage (14.3%) sectors. Non performing accounts (NPAs) increased markedly to RM74.5 million (FY2002: RM49.7 million), with HP delinquent accounts forming the largest proportion (47.4%) of PLC’s total NPAs. With the deterioration in asset quality, net NPA ratio rose to 12.2% in FY2003 (FY2002: 8.9%), higher than the industry average of 7.2% for finance companies.

As at 30 June 2004, total financing and NPAs
stood at RM258.0 million and RM52.2 million respectively.

The gearing ratio improved to 6.2 times in FY2003 (FY2002: 7.8 times), owing mainly to the lower amount of the GNIP facility outstanding at year end. With progressive repayment of borrowings from BPIMB, gearing level improved to 4.9 times as at 30 June 2004.

PLC’s asset/liability management has improved with the RM200.0 million GNIP which narrowed interest rate and maturity gaps. As at 30 June 2004, PLC has RM110.0 million CPs outstanding at an average interest rate of 3.20% p.a. to match its factoring receivables, as well as RM75.0 million MTNs at a yield-to-maturity of 5.85% p.a. to fund its HP and leasing receivables.

With the amendment of Section 28(3)(b) of the Development Financial Institutions Act 2002 (DFIA) in May 2004, BPIMB is once again allowed to grant credit facilities to PLC. MARC views the additional funding source positively, as PLC’s business growth will no longer be constrained by the limited source of funding.

The Group’s pretax profit continued to decline by 56.5% (FY2002: -22.3%) to RM1.5 million, attributed mainly to the higher interest expense and loan loss provisions. Consequently, return on asset and equity weakened to 0.4% (FY2002: 1.1%) and 3.9% (FY2002: 10.4%) respectively. Results for the six-month period ending 30 June 2004 was, however, more encouraging with pre-tax profits recorded at RM5.9 million, mainly due to lower loan loss provisions.