Lionbridge Capital Co. Ltd. Outlook Revised To Negative On Lower Capi Ratings Affirmed At #B/B#

Stocks and Financial Services Press Releases Monday June 25, 2018 12:23
HONG KONG--26 Jun--S&P Global Ratings

HONG KONG (S&P Global Ratings) June 25, 2018--S&P Global Ratings today said it has revised its outlook on Chinese financial leasing company Lionbridge Capital Co. Ltd. to negative from stable. At the same time, we affirmed our 'B/B' long-term and short-term issuer credit ratings.

The outlook revision to negative reflects Lionbridge's faster-than-expected asset growth over 2017, worsening its risk-adjusted capital (RAC) ratio from our original expectation of 7%-7.5% to 5%-5.5%, which is nearing our downgrade trigger of 5%. In 2017, Lionbridge's total assets grew by approximately 65.1%, driven by its rapidly expanding finance lease portfolio, which increased by approximately 92%.

While we note flat credit growth in recent months, we believe Lionbridge is likely to expand its lease portfolio, focusing on heavy-duty trucks, following any capital infusion. Should the infusion not contain sufficient equity features, the RAC ratio, our primary measure of capitalization, could come under further pressure.

We note some changes in Lionbridge's portfolio mix in recent months with greater focus on heavy-duty truck leasing, while exiting healthcare and auto-lease business lines to better utilize capital resources. Asset quality metrics has improved with nonperforming loans declining to 2.2% in December 2017 from 4.67% in December 2016. We also note that Lionbridge's lease receivables that are 90 days plus overdue dropped to 0.72% in December 2017 from 1.1% in December 2016.

The negative outlook on Lionbridge reflects our view that there is a one-in-three chance that we could lower the ratings on the company over the coming one to two years.

We could lower the rating if: (1) Lionbridge's RAC ratio declines below 5%. This could occur if the company grows quickly without adequate and timely equity capital infusion; (2) the company loosens its underwriting standards, leading to higher credit losses than its peers; (3) its liquidity becomes vulnerable such that it has problems meeting its financial commitments; (4) it deviates from its strategy and aggressively enters high-risk industries; or (5) it breaches any of its debt covenants.

We could revise the outlook back to stable if Lionbridge: (1) strengthens its risk-adjusted capitalization sustainably above 5% with equity capital; (2) demonstrates a track record of stable asset quality metrics; (3) demonstrates a track record of sustainable business growth; and (4) generates stable and adequate earnings.

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