Capital Intelligence (CI), the international credit rating agency, reaffirms Al Manar Financing and Leasing Company KSC’s (Al Manar) Corporate Ratings at ‘B+’ Long-Term and ‘B’ Short-Term. These ratings are supported by the improvement in the quality of the Company’s financing receivable book, with the notable fall in the non-performing financing receivables ratio (NPFR) and by the company’s return to profitability. Ratings, however, remain constrained by the below satisfactory NPFR loss coverage ratio, the high concentration in its funding base, the narrow revenue base, and by the small absolute size of the balance sheet. With the good performance to end Q3 2013, and a new funding facility currently being finalised to support future asset growth, a ‘Positive’ Outlook is assigned to the Company’s ratings. An upward revision of the ratings would however require the Company to demonstrate sustained portfolio growth and a more diversified funding base, while maintaining the improving asset quality and earnings trends.
Al Manar saw a turnaround with a return to asset growth and profitability in 2012 which was followed by a significant improvement in the quality of its financing receivable book and higher net profit for the nine months to end Q3 2013. The growth of its financing receivables book in 2012, the first growth since 2008, was a positive change. However, as with its bigger peers, its financing receivable book contracted marginally the nine months to end Q3 2013, given the still challenging operating environment, increased competition in the consumer financing market in Kuwait, as well as the scarcity of funding sources. The Company’s large portfolio of NPFRs has been declining over the past few years and the large write off of unsecured NPFRs in Q3 2013 led to a significant improvement in the quality of its financing receivable book. The Company’s NPFRs ratio fell notably, although remaining a little on the high side compared to some of its bigger peers. However, NPFR loss coverage weakened in Q3 2013 as a result of these write-offs, although this is partly mitigated by the collateral held. The maturity profile of the financing receivable book has shortened in recent periods, providing liquidity and ample support to the Company debt serviceability. At end Q3 2013, short term financing receivables remained well in excess of the Company’s total debt. However, its funding base remained highly concentrated and the secured nature of its borrowings meant that a fairly large proportion of its asset base is encumbered. That said, as these borrowings have declined, some of the pledged assets are being released allowing the Company to secure new funding. In line with the Company’s business model, its revenue streams are very narrow and largely confined to its financing receivable book. The latter, has always been a profitable business for the Company, although margins have narrowed over the years. Losses in previous years were largely due to the negative impact of its financial investments. The improved stock market has also had a positive impact on Al Manar’s financial investments, providing a boost to the Company’s bottom line in recent periods.