TRIS Rating Co., Ltd. has downgraded the ratings of guaranteed debentures of EASY BUY PLC (EASY BUY) to “BBB+” from “A”, and has also placed the “negative” CreditAlert for EASY BUY’s issue ratings. At the same time, TRIS Rating has affirmed the company rating of EASY BUY at “BBB” with “stable” outlook.
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 uncertainty of higher provisioning expenses for both possible loan losses and refunds of overpaid interests, and the worsening business environment in Japan. These put a downward pressure on ACOM’s credit profile. The issue ratings also reflect TRIS Rating’s belief that the support from ACOM’s major shareholder, Mitsubishi-UFJ Financial Group Inc. (MUFG), to ACOM continues to exist.
The issue ratings are also taken into consideration a full guarantee by ACOM, which is rated “Ba3” with a “negative” outlook by Moody’s Investors Service (Moody’s) on 29 March 2011, 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 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” CreditAlert for the issue ratings of EASY BUY reflects the remained uncertainty of financial performance of ACOM, the guarantor of EASY BUY, in FY2011 and FY2012, which was highly pressured by higher provisioning expenses for both possible loan losses and refunds of overpaid interests. The further “downgrade” of the issue ratings will be considered if the support from MUFG to ACOM are likely to be lower or non-existed.
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.
TRIS Rating said, ACOM reported net losses totaling 42 billion yen in the first nine months of FY2010 (ending March 2011), nosedived sharply from net profit of 1.6 billion yen in the first nine months 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. However, the ratio of shareholders’ equity to total assets sustained at around 29% as of December 2010.
As of December 2010, the loan receivables of EASY BUY were Bt25,333 million, made up 5.2% of ACOM’s consolidated receivables. As of March 2010, the amount of EASY BUY’s liabilities guaranteed by ACOM totalled 57,658 million yen, 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 to provide 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 BBB+ from A EB128B: Bt2,710 million guaranteed debentures due 2012 Downgraded to BBB+ from A EB128C: Bt3,500 million guaranteed debentures due 2012 Downgraded to BBB+ from A EB133A: Bt1,000 million guaranteed debentures due 2013 Downgraded to BBB+ from A CREDITALERT DESIGNATION: NEGATIVE
? Copyright 2011, TRIS Rating Co., Ltd. All rights reserved. Any unauthorized use, disclosure, copying, republication, further transmission, dissemination, redistribution or storing for subsequent use for any purpose, in whole or in part, in any form or manner or by any means whatsoever, by any person, of the credit rating reports or information is prohibited. The credit rating is not a statement of fact or a recommendation to buy, sell or hold any debt instruments. It is an expression of opinion regarding credit risks for that instrument or particular company. The opinion expressed in the credit rating does not represent investment or other advice and should therefore not be construed as such. Any rating and information contained in any report written or published by TRIS Rating has been prepared without taking into account any recipient’s particular financial needs, circumstances, knowledge and objectives. Therefore, a recipient should assess the appropriateness of such information before making an investment decision based on this information. Information used for the rating has been obtained by TRIS Rating from the company and other sources believed to be reliable. Therefore, TRIS Rating does not guarantee the accuracy, adequacy, or completeness of any such information and will accept no liability for any loss or damage arising from any inaccuracy, inadequacy or incompleteness. Also, TRIS Rating is not responsible for any errors or omissions, the result obtained from, or any actions taken in reliance upon such information. All methodologies used can be found at http://www.trisrating.com/en/rating_information/rating_criteria.html.