TRIS Rating Co., Ltd. has downgraded the ratings of guaranteed debentures of EASY BUY PLC (EASY BUY) to “A” from “A+”. At the same time, TRIS Rating has affirmed the company rating of EASY BUY at “BBB”. The downgraded issue ratings reflect the weaker financial profile of ACOM Co., Ltd., EASY BUY’s parent company and the guarantor of the debentures. ACOM’s financial performance has been negatively pressured by higher provisioning expenses for both possible loan losses and refunds of overpaid interests, the full implementation of new “Money Lending Business Law” in June 2010 in Japan, and the worsening business environment in Japan. These put a downward pressure on ACOM’s credit profile.
The issue ratings also reflect a full guarantee by ACOM, which is rated “Baa3” with a “negative” outlook by Moody’s Investors Service (Moody’s) and “BBB-” with a “negative” outlook by Standard & Poor’s (S&P) on 11 January 2011. The ratings of ACOM are supported by its strong market position in the consumer finance business, a sound and experienced management team, more diversified businesses, and strong alliance with Mitsubishi-UFJ Financial Group Inc. (MUFG). MUFG currently holds a 40.04% stake in ACOM and has included ACOM as its consolidated subsidiary since 25 December 2008. These strengths are constrained by unsupportive operating and regulatory environment, which negatively affect the performance of non-bank consumer finance companies in Japan.
The “negative” outlooks for the issue ratings reflect the remained uncertainty of financial performance of ACOM, the guarantor of EASY BUY, in FY2010, which was highly pressured by higher provisioning expenses for both possible loan losses and refunds of overpaid interests.
TRIS Rating reported that under the guarantee agreement, which is governed by the Japanese laws, the guarantor irrevocably and unconditionally guarantees to promptly make full payments of obligations of the rated debentures in the event that EASY BUY does not pay. The guarantee’s obligations will be reinstated if the payments made by EASY BUY are recaptured as a result of the issuer filing bankruptcy. Furthermore, if there is any merger or consolidation of ACOM, the successor of ACOM shall assume these guaranteed obligations. If the guarantor fails to pay the amount due after receiving notice, the debentureholders’ representative can commence legal action against the guarantor in the commercial court, in Japan, for the defaulted amount. The obligations of the guarantor under this guarantee agreement rank equally with other unsecured and unsubordinated debts of the guarantor.
ACOM reported net losses totaling 44 billion yen in the first half of FY2010 (ending March 2011), nosedived sharply from net profit of 2.4 billion yen in the first half of FY2009. The company’s net loss was derived mainly from the additional provisions for losses related to refunds of overpaid interest and decrease in operating profit. Due mainly to the decline in the company’s outstanding loan, the shareholders’ equity to total loans increased from 22.5% in FY2006 (ending March 2007) to 28.3% as of September 2010.
As of September 2010, the loan receivables of EASY BUY were Bt26,476 million, made up 5.9% of ACOM’s consolidated receivables, up from 5.4% at the end of FY2009 (ending March 2010). The amount of EASY BUY’s liabilities guaranteed by ACOM totalled 57,658 million yen as of March 2010, representing 13% of ACOM’s total shareholders’ equity. EASY BUY is ACOM’s first overseas subsidiary in Southeast Asia, and figures significantly in ACOM’s strategy to be a major regional player in the consumer finance industry. ACOM has shown a strong commitment to EASY BUY, providing financial and business support by passing along technology and business practice know-how, as well as developing new products for the Thai market, said TRIS Rating. -- End
Company Rating: Affirmed at BBB Rating Outlook: Stable Issue Ratings: EB128A: Bt125 million guaranteed debentures due 2012 Downgraded to A from A+ EB128B: Bt2,710 million guaranteed debentures due 2012 Downgraded to A from A+ EB128C: Bt3,500 million guaranteed debentures due 2012 Downgraded to A from A+ EB133A: Bt1,000 million guaranteed debentures due 2013 Downgraded to A from A+ Rating Outlook: Negative
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