MARC Ratings has assigned preliminary ratings of AA/MARC-1 to Pac Lease Berhad’s Medium-Term Notes (MTN) and Commercial Papers (CP) programme with a combined aggregate limit of RM1.5 billion. The ratings outlook is stable.
The assigned ratings factor in the lengthy track record and market position of Pac Lease in the domestic industrial hire purchase sector, its sound asset quality metrics, broad operating margin, and low leverage position. The long-term rating also incorporates a one-notch uplift premised on MARC Ratings’ assessment that as an indirect wholly-owned subsidiary of Singapore-based Oversea-Chinese Banking Corporation Limited (OCBC Bank), Pac Lease would receive operational and financial support from the OCBC Group if needed.
For 1H2022, Pac Lease’s loan portfolio registered a 5.3% y-o-y growth to RM2.1 billion, reflecting improving demand for hire purchase facilities for capital equipment and machinery as well as working capital financing on the back of strengthening economic conditions. Its loan exposure to key economic sectors, namely construction and property (23.3%), business services (23.1%), manufacturing (21.5%) and transport and storage (14.7%), remains fairly diversified.
Gross impaired loans (GIL) of RM21.4 million remain low, translating to a GIL ratio of 1.02% in 1H2022 (1H2021: 1.00%). During the same period, net interest margin is strong, and stood at 5.80%. This would provide a buffer against impacts on its asset quality.
Interest income was unchanged y-o-y at RM81.8 million while pre-tax profit grew 17.6% y-o-y to RM60.9 million in 1H2022, mainly owing to write-back of allowance of RM14.1 million (1H2021: RM4.7 million). Pac Lease’s hire purchase, term loan and other financing operations are mainly funded through wholesale borrowings from banks (39.0% as at end-1H2022), issuance of commercial papers (22.9%) and medium-term notes (15.5%) and credit lines from Cagamas Berhad (22.6%). This also reflects Pac Lease’s diversified base of lenders.
Of its total borrowings of RM1.5 billion as at end-1H2022, about 72% were short-term which poses liquidity and refinancing risks. These risks are substantially mitigated by its status as a member of the OCBC Group, which would provide ready access to funding. The initial drawdown is expected to be between RM400.0 million and RM600.0 million under the proposed RM1.5 billion issuance programme, which will be largely utilised for refinancing. Its debt-to-equity ratio of 2.48x is expected to remain unchanged, well below its internal prudential limit.