OREANDA-NEWS. Fitch Ratings has affirmed Taiwan-based Chailease Finance Co. Ltd.'s (Chailease) Long-Term Issuer Default Rating (IDR) at 'BBB-' and National Long-Term Rating at 'A(twn)'. Its subsidiary Fina Finance & Trading Co., Ltd's (Fina) National Long-Term Rating is affirmed at 'A-(twn)'. The Outlook on the ratings is Stable. A full list of rating actions is available at the end of this Rating Action Commentary.

KEY RATING DRIVERS
IDRS, NATIONAL RATINGS AND SENIOR DEBT

Chailease's ratings reflect its solid franchise in leasing and instalment financing in Taiwan; a resilient business model; and sound performance in asset quality and profitability. These strengths are tempered by an appetite for new ventures to protect its earnings; its wholesale funding nature; and the group's large exposure to the relatively more volatile China market through its sister company Chailease International Finance Corporation.

Fina's National Long-Term Rating is rated one notch below that of Chailease, to reflect its strategic importance to the Chailease group. It has specialised in leasing for construction machinery/equipment and transportation vehicles, an extension of Chailease's SME financing. The high level of managerial and operational integration underpins its parent's strong propensity to support. On a standalone basis, Fina has performed consistently with sound profitability and asset quality while maintaining adequate risk buffers.

Chailease, on a consolidated basis, has sustained steady and strong operating profits with a return on assets of 3.4%-3.8% during 2012-1H15, underpinned by healthy interest margins and well-managed credit costs. Asset quality has deteriorated amidst the cyclical economic slowdown, driven primarily by Chailease's relatively new exposures to real estate and Fina's transportation vehicle financing. The impaired-asset ratio had trended up to 2.8% by end-3Q15 from 2.4%-2.5% in 2013-2014. Fitch expects the company's adequate risk buffers - including effective pricing for risks, sound provision and capital, as well as strong collateral protection - to allow Chailease to withstand the asset-quality challenges.

Asset growth rate is likely to slow to the high-single-digits in 2015-2016 from a 13.5% compound annual growth rate (CAGR) over 2011-2014 as the economy slows. Chailease has continued to sustain its growth momentum by adding new businesses, including principal investment in solar power generation, real estate financing, and micro financing. New ventures have aided business diversity but could potentially expose Chailease to unexpected, idiosyncratic market risks of each sub-sector. Fitch believes the associated risk from the new ventures is manageable to the company as a whole, given its diversified portfolio composition and satisfactory risk controls.

Taiwan's strong liquidity environment has benefited Chailease's funding and liquidity profile, and is accommodating to the company's funding strategy to operate with a negative short-term funding gap. Chailease's increasingly diversified funding sources, limited usage of secured borrowings, and reasonably short duration of its assets also mitigate its liquidity-related risks. Fitch expects Chialease to consistently maintain an adequate through-the-cycle capital profile with equity-to-assets managed at around 14%-15%. The ratio was temporarily 13.2% at end-1H15 following an annual dividend payout, but Fitch expects it could return to above 14% by end-2015 through earnings accumulation.

Fina's underlying performance in profitability and asset quality has been steady. The portfolio mix change resulting from the absorption of Chailease's vehicle-financing business since 2013's intra-group business re-alignment has resulted in profitability (measured by return on assets) trending down to 2.9% at 1H15 from near 4% before the re-alignment. Profitability should stabilise as the portfolio shift stabilises and the company retains its pricing power. Fina's leverage is modest, with equity-to-assets at 20% at end-1H15. Fina has a shared risk-governance framework with its parent, and maintains effective underwriting policies.

RATING SENSITIVITIES
IDRS, NATIONAL RATINGS AND SENIOR DEBT

A rating upgrade for Chailease is unlikely in the near to medium term, as the group's ratings are constrained by its susceptibility to severe economic downturns in emerging markets and its appetite for growth. Negative rating action would result from excessive growth without a commensurate capital enhancement, and/or any compromise in underwriting discipline. Deterioration in Chailease group's financial strength could also pressure its rating.

Fina's ratings and Stable Outlook are closely linked with those of Chailease. Positive rating action could come from a further strengthened integration between Fina and its parent, i.e. in the area of treasury management. Negative rating action could result from any weakening in the links between Fina and its parent, including ownership dilution and reduced importance of Fina within the group. Any rating action on Chailease would trigger a similar move on Fina's ratings.

Chailease' senior unsecured debt is rated the same level as its National Long-Term Rating, in compliance with Fitch's rating criteria on senior unsecured bond instruments. The debt constitutes direct, unconditional, and unsecured obligations of the company. Any rating action on Chailease is likely to trigger a similar move in its debt ratings.

The rating actions are as follows:

Chailease Finance Co, Ltd.
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)'

Fina
National Long-Term Rating affirmed at 'A-(twn)'; Outlook Stable
National Short-Term Rating affirmed at 'F2(twn)'