Monday, Apr 28, 2003
The rating affirmation of Pembangunan Leasing Corporation’s (PLC)’s Guaranteed Notes reflects the strength of the unconditional and irrevocable guarantee provided by Bank Pembangunan & Infrastruktur Malaysia Berhad (BPIMB) which carries a rating of A from MARC. PLC’s financial performance has shown improvement for the past five years with increasing pre-tax profit since 1998. MARC’s main concern however, lies on the sustainability of PLC’s business growth following the prohibition of any loans and advances from BPIMB under the new Development Financial Institutions Act 2002 (DFIA 2002). PLC’s asset quality continued to be weighed down by the substantial share of Non-Performing Accounts (NPAs) prior to 1998 in its loan book.
PLC is primarily involved in providing hire purchase (HP) and lease financing as well as factoring and other related services to various industries. As at 30 September 2002, PLC’s gross receivables reached RM272 million. By industry, manufacturing remained the largest sector representing 28% of total loan portfolio as at 30 September 2002. Loans to the wholesale and retail trade had registered significant increase in share since 2001 on the back of the surge in the factoring business. To complement its core businesses, PLC has a corporate agency which cross-markets insurance products to its existing financing customer base. Operating in a highly fragmented industry, PLC has a market share of less than 5%.
In FY2001, NPA ratio improved to 23.3% from 31.0% previously. For the nine months ended September 2002, NPA ratio further improved to 19.7% mainly due to settlement of HP’s NPAs under the restructuring scheme of Corporate Debt Restructuring Committee (CDRC). NPAs for leasing however, registered significant increase, mainly contributed by non-performing accounts in the wholesales and retail trade sector. Nonetheless, about 75% of total NPAs were problems loans originated prior to 1998, where the bulk of it came from the construction sector. The recent loans have performed better due to the strengthened credit underwriting process, such as, selective factoring contracts and improvement in credit standing of loan recipients. While the company is building up loan loss provisions accordingly, reserve levels remain low vis-à-vis the portfolio quality.
Gearing ratio of PLC stood at 7.0 times as at FY2001 on the back of new loans amounting to RM78.9 million. As at 30 September 2002, debt to equity ratio improved to 5.7 times as the drawdown of the Guaranteed Notes was moderated by the repayment of BPIMB’s promissory notes. PLC has a paid up capital of RM50 million. The shareholders’ funds however, continued to be eroded by accumulated losses totaling RM18.6 as at September 2002. Following the new DFIA 2002, MARC does not foresee any capital injection in near future.
The prohibition imposed under the new Act also poses challenges to PLC in seeking stable and alternative funding to support its business growth while promoting sound funding match. As at September 2002, loans and advances from BPIMB accounted for merely 14% of total funding as compared to 42% in FY2001. PLC will be required to source new funding as its existing RM30 million bank loan is expected to mature in January 2004.
PLC’s operating performance has recorded continuous improvement after recording a pre-tax loss of RM5.3 million in 1998 due to the financial crisis. The company’s pre-tax profit increased by more than 50% to RM4.45 million in FY2001 from RM2.90 million previously. For the nine months ended September 2002, PLC reported pre-tax profit of RM4.16 million, driven by substantial increase in factoring and HP financing.
The upcoming merger or privatization of finance companies will continue to pose pressure to PLC as competition in terms of cost of funding, pricing and product specification intensifies.
PLC is primarily involved in providing hire purchase (HP) and lease financing as well as factoring and other related services to various industries. As at 30 September 2002, PLC’s gross receivables reached RM272 million. By industry, manufacturing remained the largest sector representing 28% of total loan portfolio as at 30 September 2002. Loans to the wholesale and retail trade had registered significant increase in share since 2001 on the back of the surge in the factoring business. To complement its core businesses, PLC has a corporate agency which cross-markets insurance products to its existing financing customer base. Operating in a highly fragmented industry, PLC has a market share of less than 5%.
In FY2001, NPA ratio improved to 23.3% from 31.0% previously. For the nine months ended September 2002, NPA ratio further improved to 19.7% mainly due to settlement of HP’s NPAs under the restructuring scheme of Corporate Debt Restructuring Committee (CDRC). NPAs for leasing however, registered significant increase, mainly contributed by non-performing accounts in the wholesales and retail trade sector. Nonetheless, about 75% of total NPAs were problems loans originated prior to 1998, where the bulk of it came from the construction sector. The recent loans have performed better due to the strengthened credit underwriting process, such as, selective factoring contracts and improvement in credit standing of loan recipients. While the company is building up loan loss provisions accordingly, reserve levels remain low vis-à-vis the portfolio quality.
Gearing ratio of PLC stood at 7.0 times as at FY2001 on the back of new loans amounting to RM78.9 million. As at 30 September 2002, debt to equity ratio improved to 5.7 times as the drawdown of the Guaranteed Notes was moderated by the repayment of BPIMB’s promissory notes. PLC has a paid up capital of RM50 million. The shareholders’ funds however, continued to be eroded by accumulated losses totaling RM18.6 as at September 2002. Following the new DFIA 2002, MARC does not foresee any capital injection in near future.
The prohibition imposed under the new Act also poses challenges to PLC in seeking stable and alternative funding to support its business growth while promoting sound funding match. As at September 2002, loans and advances from BPIMB accounted for merely 14% of total funding as compared to 42% in FY2001. PLC will be required to source new funding as its existing RM30 million bank loan is expected to mature in January 2004.
PLC’s operating performance has recorded continuous improvement after recording a pre-tax loss of RM5.3 million in 1998 due to the financial crisis. The company’s pre-tax profit increased by more than 50% to RM4.45 million in FY2001 from RM2.90 million previously. For the nine months ended September 2002, PLC reported pre-tax profit of RM4.16 million, driven by substantial increase in factoring and HP financing.
The upcoming merger or privatization of finance companies will continue to pose pressure to PLC as competition in terms of cost of funding, pricing and product specification intensifies.