MARC Ratings has assigned a rating of AA-_(cg) on Chailease Berjaya Credit Sdn Bhd’s (CBC) RM1.0 billion Medium-Term Notes Programme (MTN programme). The rating outlook is stable. The programme carries an unconditional and irrevocable guarantee from CBC’s ultimate holding company, Chailease Holding Company Limited (CHC).

CBC is a 70:30 joint venture between CHC and Berjaya Corporation Berhad (BCorp). Established as a non-bank financial institution, CBC is primarily involved in hire purchase financing of second-hand passenger cars and new motorcycles. Since commencing operations in 4Q2015, the company’s financing portfolio has grown sharply at a compounded annual growth rate (CAGR) of 36.8%. CBC’s growth has been supported by periodic capital injections from its shareholders, totalling RM175 million since its inception in October 2015. With a financing portfolio of RM1.9 billion as at end-1H2022, CBC expects to maintain its current double-digit annual growth rate with focused expansion on financing new motorcycles. This notwithstanding, competitive landscape, rising interest rate environment coupled with inflationary pressures could pose headwinds to its growth trajectory. 

We note CBC’s asset quality metric has remained broadly stable with its gross impaired financing (GIF) ratio standing at a low 1.7% as at end-1H2022 (end-1H2021: 1.6%). That said, while CBC is susceptible to increases in delinquencies as its portfolio seasons, we draw comfort from its established underwriting and collection measures that have been adopted from the well-tested guidelines and policies of its Taiwan-based sister company, Chailease Finance Co Ltd (CFC), the main operating subsidiary of CHC. We also note that CBC has a healthy financing loss reserve coverage ratio of 194.0% as at end-1H2022.

In 1H2022, CBC’s interest income rose 16.6% y-o-y to RM142.2 million in tandem with its portfolio growth. Correspondingly, pre-tax profit rose to RM69.4 million (1H2021: RM57.4 million). Net interest margin over the years has also remained strong, hovering above 11.0%.  In terms of funding, CBC has relied primarily on bank borrowings which have grown steadily in line with its asset growth, standing at RM1.5 billion as at end-1H2022. Reliance on short-term revolving credit has declined, standing at 36.9% as a proportion of total borrowings from a high of 60.3% as at end-2020. Assuming an initial drawdown of RM300 million, debt-to-equity (DE) ratio is projected to increase to 4.5x from 3.7x. MARC Ratings notes that proceeds from the MTN programme would largely be used to repay/refinance the company’s existing borrowings, which may bring its DE ratio lower. 

CHC, through its key subsidiary CFC, is a dominant player in leasing in Taiwan with a market share of about 40%. It also has other subsidiaries involved in leasing in China and the ASEAN region. CHC’s consolidated financing book stood at TW$613.8 billion (RM90.9 billion) as at end-1H2022 with a GIF ratio of 2.2%. MARC Ratings has assigned a public information rating of AA-/Stable to CHC. Accordingly, the MTN programme reflects the credit strength of the unconditional and irrevocable guarantee from CHC. This is also based on the legal opinion provided on the transaction that the corporate guarantee constitutes enforceable obligations of the guarantor in accordance with the terms under the laws of the Republic of China (Taiwan).

The stable rating outlook reflects the guarantee provided by CHC. MARC Ratings expects CHC to broadly maintain its credit metrics within the current rating band in the near term. 

Any rating upgrade would hinge on the sustained improvements in CHC’s credit profile, mainly its leverage position and impairment levels. 

The rating would come under pressure if CHC’s performance deteriorates sharply, which may result in a change in CBC’s issue rating.