Fitch Ratings has downgraded the credit outlook for Chailease Finance Co (中租), the nation’s top leasing services provider, from “stable” to “negative,” as disruptions caused by the COVID-19 outbreak could affect its asset quality and profitability, while sapping its access to capital.
The revision would not affect the company’s long-term issuer default rating of “BBB,” as it has adequate capital and liquidity buffers to withstand the challenges from the pandemic, Fitch said.
The weakening environment would significantly affect the firm’s asset quality and profitability given its focus on financing small and medium-sized enterprises, whose credit profiles are more susceptible to a sharp economic downturn, Fitch said.
The mounting uncertainty from COVID-19 would heighten operational challenges from its increasingly complex cross-border businesses in a notably weakened global economic environment, leading to higher credit costs, lower profitability and greater difficulty in accessing funding, Fitch said.
The ratings for Chailese are based on its credit profile across the region, Fitch said, adding that loans from Taiwan accounted for half of its leasing portfolio last year, while China made up 34 percent and Southeast Asia 15 percent.
Chailease Finance’s credit rating would be downgraded if the economic conditions result in a material deterioration in its asset quality and profitability, reducing Fitch’s tolerance for leverage, the agency said.
Signs of deteriorating sentiment toward the company’s ability to access funding — possibly caused by uncertainty and contagion effect from its overseas businesses — or a retreat in the company’s competitive position or financial strength could also lead to a negative rating action, Fitch said.
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