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
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
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)'