TEXT-Fitch affirms Taiwan's Chailease Group
Jan 10 - Fitch Ratings has affirmed the ratings of Taiwan's Chailease Finance Co. Ltd. (Chailease) and its subsidiary Fina Finance & Trading Co. Ltd. (Fina). The Outlook is Stable. A full rating breakdown is provided at the end of this commentary.
The ratings reflect Chailease's adequately-managed capitalisation and consistent performance in risk governance, its dominant franchise in leasing/instalment financing in Taiwan and a long-established resilient business model.
Fina's National Long-Term 'A-(twn)' rating is notched down a level from Chailease's 'A(twn) rating to reflect its strategic importance to Chailease and the parent's propensity/capacity to provide capital injection to finance Fina's growth, while taking into consideration Fina's restricted access to capital market and its low liquidity flexibility.
The Stable Outlook underlines Fitch's expectation that Chailease will maintain its adequate capitalisation and enforce risk governance alongside its business expansion. Rating upgrade is unlikely in the near-to-medium term, given the company is constrained by its modest franchise by global peer comparison. Negative rating action may result from significant deterioration in Chailease's or the group's (Chailease Holding Company Ltd. (Cayman)) credit profile, most likely from excessive risk-taking in pursuit of growth, particularly in China.
Fina's Stable Outlook is in line with that of the parent. Negative rating drivers would be significant weakening in the links between the two entities, including ownership dilution, reduced strategic importance of Fina within the group, Fina's risk governance diverging from that of the group, or a downgrade on the parent's rating.
Chailease reported an improved annualised return on equity of 26.5% at end-H112 (end-2011: 20.1%), aided by portfolio growth and its ability to price in risk premium. Chailease remains prudent in credit extension and proactive in risk monitoring. Its impaired asset ratio (defined as 7-day overdue) fell to 1.6% at end-H112 (end-2011: 2.3%), and gross loan coverage ratio remained above 3% during 2010-H112, providing a comfortable buffer against potential credit losses.
Chailease is largely reliant on wholesale funding and susceptible to potential liquidity withdrawals. However, refinancing risk is partly moderated by its reasonable access to capital markets, continued diversification in funding sources and its ability to deleverage by suspending new credit extension. Fitch considers Chailease's capitalisation adequate for its moderate-to-high risk profile. Its equity/asset ratio rose to around 18.1% (end-H112: 15%), following Chailease Holding Company's successful GDR issue in October 2012. Nevertheless, Fitch believes that balancing growth with risk governance remains essential to overall capital strength.
Fina reported stable annualised return on equity of 24.5% at end-H112 (end-2011: 26.9%). Fina and its parent have a shared risk governance framework. Its impaired asset ratio rose to 3.7% at end-H112 (end-2011: 3.1%), due to a domestic economic slowdown in 2012. However, Fina's firm interest margin and prudent reserves should help withstand potential external shocks.
Like its parent, Fina has a long record in managing through challenging liquidity environments. Capital injection from Chailease lifted Fina's equity ratio to around 22.9% (end-H112: 16.7%), which should help support future growth.
Chailease is the largest leasing company in Taiwan with an above 40% market share, and is fully owned by Chailease Holding Company (listed in December 2011). Its major business includes providing leasing/instalment financing to SMEs for their purchase of raw materials, machinery, equipment, etc. Fina specialises in leasing/instalment financing of construction machinery and equipment, mainly in public infrastructure. Chailease's geographical coverage includes its home market in Taiwan and a moderate portfolio in Thailand, Vietnam and the U.S. Chailease Holding Company has a growing presence in China.
The rating actions are as follows:
Long-Term IDR affirmed at 'BBB-'; Outlook Stable
Short-Term IDR affirmed at 'F3'
National Long-Term rating affirmed at 'A(twn)'; Outlook Stable
National Short-Term rating affirmed at 'F1(twn)'
Senior unsecured debt affirmed at 'A(twn)'
National Long-Term rating affirmed at 'A-(twn)'; Outlook Stable
National Short-Term rating affirmed at 'F2(twn)'
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