RPT-Fitch Affirms Ratings on Taiwan's Chailease Group
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Dec 6 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has affirmed Taiwan's Chailease Finance Co. Ltd's (Chailease) Long-Term Issuer Default Rating (IDR) at 'BBB-' and National Long-Term Rating at 'A(twn)'. Its subsidiary Fina Finance & Trading Co. Ltd's (Fina) National Long-Term Rating is affirmed at 'A-(twn)'. The Outlooks for the ratings are Stable. A full rating breakdown is provided at the end of this commentary.
KEY RATING DRIVERS - IDRs and National Ratings
Chailease's ratings reflect its established, market-leading franchise in leasing and instalment financing in Taiwan, sound credit quality of its diversified leasing pool, sustained profitability and the maintenance of an adequate liquidity and capital profile. These considerations are tempered by the potential risk arising from the group's growth ambitions, its reliance on wholesale funding and still-modest franchise by the international standards.
Fina's National Long-Term Rating is support-driven and rated one notch below that of Chailease. Its strategic importance to Chailease and highly integrated management and operations with the parent lead to a high propensity of support by the latter, if needed. On a standalone basis, Fina has performed consistently with healthy profits and asset quality.
Chailease's profitability was stable during 2011-1H13 (return on assets: 3.5%-3.9%), because it maintained its interest margins and managed its credit costs. Fitch expects its disciplined risk pricing and prudent credit management to sustain profitability in 2014. The company's IFRS-based impaired asset ratio was stable at 3.7% at end-1H13 (end-2012: 3.6%), which is protected by a comfortable provision coverage (2.9% of gross loans at end-1H13), and a strong recovery prospect.
Reliance on institutions for funding renders Chailease vulnerable to a systemic liquidity drought. The company, nevertheless, has actively managed its liquidity flow and funding capacity. Chailease has during past market upheavals demonstrated reasonably strong ability to quickly reduce its business portfolio to ration its cash outflow and access short-term funding. Its secured borrowing was low at 10% of total borrowing at end-1H13, providing considerable funding flexibility.
Fitch believes Chailease and its parent Chailease Holding Company Ltd. (Cayman) are committed to maintaining an adequate capital profile to meet the capital demands of the group's growth plan. Fitch expects its equity/asset ratio to remain satisfactory at around 15% at end-2013. The continuing moderation of the parent's business growth in mainland China is likely to reduce the parent's demand on Chailease for dividends and support stronger capital formation in Chailease in 2014.
Fina's annualised return on assets declined to 3.1% in 1H13 (end-2012: 3.8%), mainly due to increased operating costs from consolidating the heavy vehicle segment of an affiliate. In Fitch's view, improving economies of scale and healthy asset quality should help support its profitability. Fina has maintained its prudent underwriting standard, in line with the group's risk governance, and kept its impaired asset ratio stable at 3.2% at end-1H13.
Like its parent, Fina has maintained a steady liquidity and funding profile, with a long record in resilience in challenging liquidity environments. Fina has a reasonably strong capital position (equity ratio: 18.7% at end-1H13), underpinned by its rather high internal capital generation and continued support from Chailease.
RATING SENSITIVITIES - IDRs and National Ratings
A rating upgrade for Chailease is not likely in the near- to medium-term, because it is constrained by potential risk stemming from its strong growth and the group's increasing exposure to higher risk emerging markets. Failure to maintain a sound capital profile commensurate with its growth will pressure the ratings. Deterioration in Chailease's or the group's credit profile, possibly from aggressive risk-taking in pursuit of growth, may also lead to lower ratings.
The Stable Outlook on Fina's National Long-Term Rating follows the Outlook on its parent's ratings. Any weakening in the linkage between Fina and Chailease, including ownership dilution, and reduced strategic importance of Fina within the group, will pressure its ratings. Any rating action on Chailease is likely to trigger a similar move in Fina's ratings.
KEY RATING DRIVERS AND SENSITIVITIES - Senior Debt
Chailease's senior unsecured debt is rated the same level as its National Long-Term Rating because the debt constitute direct, unconditional, and unsecured obligations of the company. Any rating action on Chailease is likely to trigger a similar move in its debt ratings.
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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