Friday, Jan 18, 2002
MARC has assigned a MARC-1(bg)/A(bg) (single A flat, bank guaranteed) rating on Pembangunan Leasing Corporation’s (PLC) Guaranteed Notes Issuance Programme comprising the issuance of Commercial Papers and Medium Term Notes. The rating reflects the strength of the unconditional and irrevocable guarantee provided by Bank Pembangunan & Infrastruktur Malaysia Berhad (BPIMB) which carries a rating of A (single A flat) from MARC. Meanwhile, PLC’s stand-alone credit profile is a function of its pool of loyal customers which have been churning out repeat businesses for the group as well as the recent adoption of selective underwriting of quality factoring receivables. MARC’s concerns, however, center on the high level of loan losses and the volatile operating profitability.
PLC is the principal subsidiary of BPIMB and numbers amongst the many leasing companies operating in this fragmented industry. Although the group’s receivables portfolio has come off its high of over RM230 million as at end 1996, the 65% expansion in sales in 2000 led to total financing receivables recovering to RM203 million as of 31 December 2000, or an estimated 3% market share. PLC’s business focuses primarily on providing HP and lease financing as well as factoring and other related services to a whole range of industries. The manufacturing sector had the largest representation of over 40% of the portfolio. In addition, PLC has a corporate agency which cross-markets insurance products to its existing financing customer base.
PLC’s operating performance has improved since financial year 1998, when the group incurred a net loss of RM7.5 million as a result of heightened credit losses during the financial crisis. Losses and delinquencies rose significantly in 1998 and remained high in 1999 and 2000, due to slow collections during the challenging period. For the eight-month period ended 31 August 2001, PLC reported pre-tax profit of RM3.5 million, exceeding the RM2.9 million for the entire 2000 financial year. Earnings growth was driven by better than projected sales growth and improved net interest margin.
Like other finance and leasing companies, PLC has seen a general deterioration in credit quality in its receivables portfolio as well as lingering problems from loans to lower tier borrowers that were originated prior to the 1998 crisis. Although the total non-performing accounts has declined from its 1998 peak, they remain a high 30% (three months or more in arrears) of the gross receivable balance. While the company is building up loan loss provisions accordingly, reserve levels remain low vis-à-vis the portfolio quality. Nevertheless, the more recent loans have performed better due to the strengthening of credit underwriting practices.
PLC’s intrinsic capital position is strong with equity to assets at 15.3% and historically low amounts of leverage of about 5 times. However, MARC is concerned that unfavourable asset quality would exert pressure on PLC’s capital. PLC’s paid up capital was raised to RM50 million from RM11 million in 1996 through the conversion of advances and term loans by BPIMB. The share capital has been maintained at the same level over the past five years but shareholders’ funds continue to be eroded by accumulated losses totalling RM21 million as at end December 2000.
PLC is currently working on improving its funding mix to better reflect the characteristics of its receivables portfolio. To mitigate interest rate volatility, PLC will be refinancing its existing floating rate loans with the Guaranteed Notes programme, the subject of the current rating. The group’s asset-liability management will be greatly enhanced as PLC will have the option to issue commercial papers to match-fund its short-term factoring receivables, or medium-term notes to cover its HP and Leasing portfolio. Loans and advances from BPIMB represent a stable funding source for the group, representing 50% of total indebtedness as of December 2000, and also demonstrates the Bank’s commitment to the PLC group.
PLC is the principal subsidiary of BPIMB and numbers amongst the many leasing companies operating in this fragmented industry. Although the group’s receivables portfolio has come off its high of over RM230 million as at end 1996, the 65% expansion in sales in 2000 led to total financing receivables recovering to RM203 million as of 31 December 2000, or an estimated 3% market share. PLC’s business focuses primarily on providing HP and lease financing as well as factoring and other related services to a whole range of industries. The manufacturing sector had the largest representation of over 40% of the portfolio. In addition, PLC has a corporate agency which cross-markets insurance products to its existing financing customer base.
PLC’s operating performance has improved since financial year 1998, when the group incurred a net loss of RM7.5 million as a result of heightened credit losses during the financial crisis. Losses and delinquencies rose significantly in 1998 and remained high in 1999 and 2000, due to slow collections during the challenging period. For the eight-month period ended 31 August 2001, PLC reported pre-tax profit of RM3.5 million, exceeding the RM2.9 million for the entire 2000 financial year. Earnings growth was driven by better than projected sales growth and improved net interest margin.
Like other finance and leasing companies, PLC has seen a general deterioration in credit quality in its receivables portfolio as well as lingering problems from loans to lower tier borrowers that were originated prior to the 1998 crisis. Although the total non-performing accounts has declined from its 1998 peak, they remain a high 30% (three months or more in arrears) of the gross receivable balance. While the company is building up loan loss provisions accordingly, reserve levels remain low vis-à-vis the portfolio quality. Nevertheless, the more recent loans have performed better due to the strengthening of credit underwriting practices.
PLC’s intrinsic capital position is strong with equity to assets at 15.3% and historically low amounts of leverage of about 5 times. However, MARC is concerned that unfavourable asset quality would exert pressure on PLC’s capital. PLC’s paid up capital was raised to RM50 million from RM11 million in 1996 through the conversion of advances and term loans by BPIMB. The share capital has been maintained at the same level over the past five years but shareholders’ funds continue to be eroded by accumulated losses totalling RM21 million as at end December 2000.
PLC is currently working on improving its funding mix to better reflect the characteristics of its receivables portfolio. To mitigate interest rate volatility, PLC will be refinancing its existing floating rate loans with the Guaranteed Notes programme, the subject of the current rating. The group’s asset-liability management will be greatly enhanced as PLC will have the option to issue commercial papers to match-fund its short-term factoring receivables, or medium-term notes to cover its HP and Leasing portfolio. Loans and advances from BPIMB represent a stable funding source for the group, representing 50% of total indebtedness as of December 2000, and also demonstrates the Bank’s commitment to the PLC group.