KUALA LUMPUR (Dec 23): MARC Ratings Bhd has assigned a preliminary rating of AA/MARC-1 to Pac Lease Bhd’s medium-term notes and commercial papers programme with an aggregate limit of RM1.5 billion.

In a statement on Friday (Dec 23), it said the assigned ratings take into account Pac Lease's long-standing track record and market position in the domestic industrial hire-purchase sector, sound asset quality metrics, wider operating margin, and low leverage position.

The long-term rating also includes a one-notch uplift based on MARC's assessment that Pac Lease — as an indirect wholly owned subsidiary of Singapore-based Oversea-Chinese Banking Corporation Ltd (OCBC Bank) — would receive operational and financial support from the OCBC Group if needed.

For the first half of 2022 (1H2022), Pac Lease’s loan portfolio registered a 5.3% year-on-year 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, said MARC.

“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 was strong and stood at 5.80%. This would provide a buffer against impacts on its asset quality,” said the rating agency.

Pac Lease’s interest income was unchanged at RM81.8 million while pre-tax profit grew 17.6% to RM60.9 million in 1H2022, mainly owing to write-back of allowance of RM14.1 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 Bhd (22.6%). This also reflects Pac Lease’s diversified base of lenders,” it noted.

Touching on the group’s total borrowings of RM1.5 billion as at end-1H2022, about 72% were short term which posed liquidity and refinancing risks, said MARC.

“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 million and RM600 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,” it added.