Pembangunan Leasing Corporation Sdn Bhd - 2008

MARC has upgraded its long-term rating on Pembangunan Leasing Corporation Sdn Bhd’s (PLC) Guaranteed Notes Issuance Programme (GNIP) to AA(bg) from A+(bg), and affirmed its MARC-1 (bg) short-term rating on the GNIP. The outlook on the ratings reflects the stable outlook on the guarantor’s rating. The GNIP is guaranteed by Bank Pembangunan Malaysia Berhad (BPMB), PLC’s holding company.

The upgrade in the long-term rating of the GNIP reflects an underlying two-notch upgrade in the guarantor’s long-term rating. The upgrade in BPMB’s long-term rating stems from improvement in its intrinsic financial strength as well as increased consideration given to the high degree of implied and explicit support from the Government through the Ministry of Finance (MOF). The high degree of support derives from BPMB’s strategic importance to the domestic economy as a leading source of development and infrastructure finance in the country, and its 99.9% government-owned status. This support was recently demonstrated by a RM950 million capital increase through an equity injection by MOF. Outside systemic support considerations, BPMB’s credit profile reflects the following credit strengths: satisfactory asset quality as indicated by a low level of net non-performing loans (NPLs), improved diversification of its funding base, strong capitalization, and excellent access to the bond market. The strengths are partially offset by the relatively high concentration risks in BPMB’s infrastructure financing as well as its exposure to subsidiaries with relatively weaker individual credit profiles.

PLC is principally involved in the provision of HP, leasing and factoring facilities. Following the merger of Bank Pembangunan dan Infrastruktur Malaysia Berhad and Bank Industri & Teknologi Malaysia Berhad, PLC acquired BI Credit & Leasing Berhad (BICLB), a subsidiary of Bank Industri in July 2006. PLC recovered from losses in FY2006 with a profit before tax of RM26.2 million (FY2005: -29.6 million), mainly due to a substantial increase in other operating income to RM49.0 million (FY2005: RM5.4 million), which largely comprised negative goodwill of RM20.2 million from its merger with BICLB and an allowance for doubtful debts no longer required of RM21.6 million. Excluding negative goodwill of RM20.2 million, profit before tax would have been RM6.1 million.

In FY2006, PLC registered its first increase in total disbursements since FY2002, to more than double 2005’s figure at RM482.3 million. The increase was largely due to a RM195.9 million or 109.2% increase in factoring disbursements. However, its HP disbursements declined by 63.7% on account of intense competition from banks. In line with the higher overall disbursements, total gross receivables rose by 17.7% to RM307.9 million, bolstered by a sharp increase in leasing receivables to RM174.4 million (+73.1%). Its main market segments are transport and storage, wholesale and retail trade and manufacturing.

PLC’s asset quality improved in FY2006 with total delinquent/non-performing accounts (NPAs) decreasing to RM34.5 million (FY2005: RM67.9 million) as a result of marked decreases in NPAs for all three business classes. The improvement in asset quality coupled with the growth in its receivables base resulted in net NPA ratio declining  further to 2.6% (FY2005: 4.4%). The bulk of the NPAs were from the manufacturing (32.9%) and construction sectors (33.0%).

PLC derives most of its funding from BPMB as well as financial flexibility, particularly in relation to growing its loan portfolio. PLC’s gearing level rose to 4.9 times (FY2005: 3.2), despite the lower amount outstanding of RM30.0 million (FY2005: RM120.0 million) in respect of the GNIP facility, due to advances from BPMB amounting to RM279.4 million during the year. Excluding amounts due to BPMB, PLC’s gearing improved to 0.9 times (FY2005: 3.2 times). PLC’s total funding stood at RM380.5 million as at 31st December 2006, the highest since FY2000.