RAM Ratings reaffirms AA1(bg)/P1 ratings of AEON Credit’s RM400 million debt facility

Published on 19 September 2012

RAM Ratings has reaffirmed the respective long- and short-term ratings of AA1(bg) and P1 for AEON Credit Service (M) Berhad’s (“AEON Credit” or “the Company”) RM400 million Conventional and Islamic Commercial Papers/Medium-Term Notes (“CP/MTN”) Programme, with a stable outlook. The ratings reflect the strength of the unconditional and irrevocable guarantees extended by a consortium of 3 banks - Bank of Tokyo Mitsubishi UFJ Ltd, Mizuho Corporate Bank Ltd, and Malayan Banking Berhad - based on the weakest-link approach under RAM Ratings’ criteria on guaranteed bonds.

AEON Credit provides easy-payment schemes for purchases of consumer durables and motorcycles, along with personal financing and credit cards. It is a key player in the consumer-durables and motorcycle-financing segments in Malaysia. The Company represents AEON Credit Service Co Ltd’s (“AEON Credit Japan”) footprint in the Malaysian consumer-financing market. AEON Credit Japan plays a crucial role in the Company’s business direction and strategies through its 59.7%-stake.

AEON Credit’s gross receivables surged 34% year-on-year to RM1.5 billion as at end-February 2012, supported by the rapid expansion of its credit-card business, motorcycle easy-payment schemes and personal financing facilities. Its net interest margin remained strong at 16.9% in fiscal 2012, and is a function of its lending to generally higher-risk, low-income consumers whose debt-servicing capabilities are often more susceptible to adverse changes in economic conditions. As at end-February 2012, the Company’s gearing ratio remained largely stable at 3.2 times. Going forward, AEON Credit is expected to continue expanding, backed by new areas of growth such as used-car financing and equipment financing for small and medium-sized enterprises.

While diversification is viewed favourably, RAM Ratings is cognisant of the credit and operational risks arising from these new businesses. We also remain cautious on AEON Credit’s rapid growth due to its sizeable exposure to the lower-income segment. Nevertheless, we expect the Company’s profitability to be sustainable, aided by its robust margins.

Media contact

Gladys Chua

(603) 7628 1049

gladys@ram.com.my