Tris Rating has affirmed the rating of Neighbouring Countries Economic Development Cooperation Agency (Neda) at AAA, reflecting the company's ongoing financial support from the government.
Neda receives steady financial support from the government in the form of subsidies as part of its ordinary operations. In the event of financial distress, the likelihood of Neda receiving extraordinary support from the government is a near certainty, said Tris.
Neda requires and receives operational subsidies from the government. Funding from state-owned special-purpose financial institutions (SFIs) is available to Neda under preferential terms. Most loan agreements underlying Neda's borrowings offer flexible repayment terms and contain a government-support clause. Moreover, Neda pays no taxes.
Government subsidies are treated as revenue in Neda's profit and loss statement. This may prevent a meaningful comparison of its operating performance with other financial institutions. Neda is not expected to generate a profit.
For the 2017 fiscal year, government subsidies made up around 70% of total revenue. Net interest income comprises nearly all of the balances. Neda expects the subsidies from the government will increase over the next few years to fund its lending. Neda's major expenditures are financial grants and expenses arising from the provision of technical assistance.
Because of the government support, Tris Rating foresees no impact on Neda's rating even as leverage rises over the next three years.
Neda plans to raise more debt over the next few years; the debt-to-equity ratio will rise towards 0.5 times. Neda has relatively low leverage at present.
The ratios of equities-to-total assets and debt-to-equity were, respectively, 85% and 0.18 times at the end of September 2017. Debt funding largely comprises borrowings from SFIs, with lesser portions from commercial lenders.
As of Sept 30, 2017, total assets were 8.5 billion baht, a size comparable to a mid-sized non-bank financial institution in Thailand. Total loans outstanding amounted to 8.08 billion baht, having grown at a compound annual growth rate (CAGR) of 12.6% over a five-year period. Total funding was 8.5 billion baht after rising at a CAGR of 7.3% over the same period.
Tris Rating foresees no impact on Neda's rating from its high credit concentration risk in the next three years. Neda has a limited number of borrowers.
As of September 2017, Neda's borrowers comprised the government of Laos (91% of total loans) and Cambodia (9%). Without government support, the high loan concentration means Neda will suffer a major deterioration in asset quality should the credit profiles of these borrowers weaken. Neda has never experienced any credit loss, nor set aside any loan-loss provisions.
