RAM Ratings assigns A2/P1 ratings to Pac Lease's proposed CP/MTN programme of up to RM500 million

Published on 21 June 2011
RAM Ratings has assigned respective long- and short-term ratings of A2 and P1 to Pac Lease Berhad’s (PacLease or the Company) Proposed Commercial Papers/Medium-Term Notes Issuance Programme (CP/MTN Programme) of up to RM500 million. Concurrently, RAM Ratings has reaffirmed the respective long- and short-term ratings of the Company’s RM200 million CP/MTN Programme, at A2 and P1. Both long-term ratings have a stable outlook. The ratings are premised on PacLease’s healthy asset-quality indicators and the strong support from its ultimate major shareholder, Oversea-Chinese Banking Corporation Limited (OCBC Singapore). The ratings also take into consideration the Company’s newly acquired loan portfolio arising from business expansion which has not been fully seasoned, as well as the fragmented and competitive nature of the hire-purchase (HP)/ leasing industry.

PacLease is a wholly owned subsidiary of PacificMas Berhad (PacificMas), which in turn is ultimately owned by OCBC Singapore; the latter influences the strategic direction of PacLease. In FYE 31 December 2010 (FY Dec 2010), PacLease achieved a 54% growth in its gross receivables, on the heels of a 36% increase in FY Dec 2009. In a bid to achieve critical mass and generate higher returns on equity, PacLease intends to expand its receivables base to RM1.3 billion by 2014 (end-December 2010: RM553.9 million). As part of its growth strategy, the Company seeks to expand its receivables base beyond its traditional HP and leasing activities.

PacLease’s outstanding gross impaired loans had increased to RM7.6 million as at end-December 2010 (end-December 2009: RM5.0 million) – mainly attributable to additional newly impaired loans during the year. Given its enlarged loan base, however, the Company’s gross and net impaired-loan ratios remained unchanged at a respective 1.4% and 0.3%. Given the management’s proactive approach to provisioning, the Company’s loan-loss reserve coverage stood at a strong 147.1% as at end-December 2010. Overall, PacLease’s asset-quality indicators are deemed healthy, notwithstanding its recent rapid expansion.

Supported by stronger net interest income from its credit expansion and more robust non-interest income, PacLease’s returns on assets and equity improved to 3.0% and 11.6%, respectively, as at end-FY Dec 2010 (end-FY Dec 2009: 2.2% and 8.6%). Despite heftier borrowings, its gearing ratio only edged up to 3.0 times as at the same date (end-December 2009: 2.7 times), due to a RM35 million capital injection from PacificMas and the retention of all earnings for FY Dec 2010. Looking ahead, PacLease’s gearing ratio is likely to rise in tandem with its planned business expansion, although further capital infusions from its parent are expected to moderate the uptrend. Meanwhile, its interest-servicing ability is deemed healthy, with an interest coverage of 2.2 times as at end-December 2010 (end-December 2009: 2.1 times).

Media contact
Amy Lo
(603) 7628 1078
amy@ram.com.my