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December 5, 2007 |
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LOPRO CORP: Fitch Lowers Rating to B- with Negative Outlook Fitch Ratings has downgraded the Long- term foreign and local currency Issuer Default Ratings of Lopro Corporation to 'B-' from 'BB-'. Its Outlook remains Negative. Short-term foreign and local currency IDRs were affirmed at 'B'. The rating actions reflect, despite a high proportion of equity funding, the further deterioration in Lopro's risk profile and financial flexibility because of its weak access to funding and deteriorating pre-provision earnings. As Lopro has not been able to obtain adequate funding for loan growth, its receivables have been declining, thereby weakening its already modest franchise, while non-performing assets have continued to grow. Pre-provision operating earnings were just JPY1.6 billion in the interim six month period to end-September 2007, having been JPY5.5 billion in H1FYE07. After credit costs, Lopro reported a loss of JPY5.6 billion in H1 FYE08, which followed a poor financial year ended March 2007, when Lopro needed to make a large provision for reimbursement claims over the grey-zone interest. Like all Japanese consumer finance companies, Lopro continues to face the challenge from reimbursement of the grey- zone interest and pressure of reducing loan rates voluntarily even before the formal implementation of the lower rate cap under the revised Money Lending Business Law, which is scheduled for late 2009. Lopro introduced a restructuring program in November 2007, including further reduction in branches and employees by voluntary retirement. Established in 1970, Lopro provides loans to small businesses. Its core products are loans on notes and promissory note discounting. Headquartered in the Kyoto Prefecture, the company has 66 branches across Japan which, because of the restructuring program, will be reduced to 46 by the end of this year. At end- September 2007, it had loans and notes of JPY120 billion. Its funding consists of securitization (c.50% of total funding), borrowing (nearly 30%), including syndicated loans, and bonds (nearly20%). |
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