Pembangunan Leasing Corporation Sdn Bhd’s (PLC) Guaranteed Notes Issuance Programme (GNIP) rating is upgraded from MARC-1(bg)/A(bg) to MARC-1(bg)/A+(bg) to reflect the strength of the unconditional and irrevocable guarantee provided by Bank Pembangunan Malaysia Berhad or BPMB (formerly known as Bank Pembangunan & Infrastruktur Malaysia Berhad). BPMB’s A+ rating from MARC reflects the improvement in its profitability measures over the last three years; its strategic importance in the socio-economic development of the country and its 99.9% government ownership which have translated into the continued strong funding base and capital adequacy position of the bank. The rating is also supported by BPMB’s improvement in asset quality measures since FY2003. Nonetheless, MARC remains concerned over the contraction in PLC’s business following heightened competition posed by commercial banks and finance companies, an environment of increasing interest rates and the deterioration of PLC’s asset quality.

PLC is principally involved in the provision of hire purchase (HP), leasing and factoring facilities. In FY2004, the Group’s total gross receivables declined by 14.5% to RM274.1 million, due to the 4.7% and 30.2% contraction in gross leasing and HP receivables, respectively. The downward trend continued in FY2005, whereby a 25% decrease in gross HP receivables coupled with a 13.0% decrease in factoring receivables resulted in a further decline of 10.4% in total gross receivables (RM245.7 million).

In 2005, PLC’s financing portfolio was concentrated in the wholesale and retail trade (26.2%), transport and storage (21.6%) and manufacturing (20.7%) sectors. However, total financing decreased to RM229.3 million (-10.8%) and asset quality deteriorated with NPAs rising to RM67.9 million due to increases in HP (+46.0%) and factoring (+42.2%) delinquent accounts. PLC’s gearing level has been declining consistently over the years thanks to the management’s effort in paring down its borrowings as well as an improvement in shareholders’ funds up to FY2004. The additional capital injection of RM24.0 million in FY2005 and the lower amount owing under the GNIP facility by RM55.0 million contributed towards the further reduction in the company’s gearing level to 3.3 times. PLC’s asset/liability management has improved with the RM200.0 million GNIP which narrowed interest rate and maturity gaps.

PLC also sources its funds from BPMB following the amendment of Section 28(3)(b) of the Development Financial Institutions Act 2002 (DFIA) in May 2004, which once again allows it to grant credit facilities to PLC. MARC views the additional funding source positively, as limited funding will cease to be a constraint to PLC’s business growth. PLC’s improved pretax profit of RM3.2 million in FY2004 was overshadowed by its colossal loss of RM29.6 million in FY2005. The loss was a result of a three-fold increase in allowance for bad and doubtful debts which also resulted in PLC recording negative returns on asset (-12.7%) and equity (-73.5%) in FY2005. Nevertheless, the capital injection of RM24.0 million during the year not only cushioned the substantial loss of RM29.6 million but resulted in an improvement in equity to assets ratio to 18.9% (FY2004: 16.0%).