TRIS Rating Co., Ltd. has assigned a “AA+” rating to the proposed issue of up to Bt500 million in guaranteed debentures of Thai ORIX Leasing Co., Ltd. (TOLC). TRIS Rating has also assigned the “stable” outlook for TOLC’s guaranteed debentures. The debentures are fully guaranteed by TOLC’s parent company, ORIX Corporation (ORIX) in Japan, a company rated “A-” and “A3” by Standard & Poor’s and Moody’s Investor Services, respectively. The rating of the guaranteed debentures is based on the credit quality of the guarantor and the unconditional and irrevocable guarantee of the debentures.
Under the guarantee agreement which is governed by the laws of Japan, the guarantor unconditionally and irrevocably guarantees to promptly make payment to the debenture holders of all sums payable by TOLC under the obligations of the rated debentures in the event that TOLC has no ability to pay. In addition, if there is any merger or consolidation of ORIX, the successor of ORIX shall assume these guaranteed obligations. In case the guarantor fails to pay the amount due after receiving notice, the debenture holders’ representative can commence legal action against the guarantor in court in Japan for the amount in default. The guarantee cannot be amended or terminated without the unanimous consent of the debenture holders.
The “stable” outlook for TOLC’s guaranteed debentures reflects the creditworthiness of its guarantor, ORIX, which has received a “A-” rating with “stable” outlook from Standard and Poor’s and a “A3” rating with “negative” outlook from Moody’s Investor Services. The rating outlook from Moody’s Investor Services is still “negative”. In case there is no unexpected negative factors and changes in rating methodology, there is a likelihood that the rating will not be downgraded in the near future because ORIX’s performance has improved steadily, reaching a plateau such that the rating will be able to be maintained at the current level.
TRIS Rating reported that the rating of ORIX, the guarantor, is supported by its strong business profile in Japan. ORIX’s key strengths are its diversified businesses and funding sources. The strengths are offset by ORIX’s asset concentration risk because of its exposure to the highly volatile real estate segment. ORIX is also vulnerable to market turmoil due to its high dependence on capital market financing.
ORIX was established in 1964 through the cooperation of eight financial institutions and trading companies. ORIX was the pioneer company in the Japanese leasing industry. Through almost 50 years of operation, ORIX has diversified by offering a broad range of financial services other than leasing services. At the end of December 2011, ORIX’s total assets were 8.2 trillion yen which was composed of 2.7 trillion yen in installment loans, (33.5% of total assets), 1.3 trillion yen in investment in operating leases (15.5%), and 1.2 trillion yen in investment in securities (14.2%).
Currently, ORIX has six lines of business segments: Corporate Financial Services, Maintenance Leasing, Real Estate, Investment and Operations, Retail, and Overseas Business. At the end of December 2011, in terms of segment assets, the Retail segment constituted 28.7% of segment assets, followed by Real Estate (23.7%) and Overseas Business (15.8%). However, the overseas segment contributed the highest portion of overall segment profits at 35.3% of the 111.4 billion yen in total segment profit report for the first three quarters of FY2012. ORIX’s segment assets have steadily declined from 6.9 trillion yen in FY2009 to 5.9 trillion yen at the end of December 2011. The reduction reflects its intention to reduce ORIX’s real estate assets which are in a highly volatile segment subject to adverse changes in the economy. At the same time, ORIX has been trying to improve its profitability from high-return segments such as Maintenance Leasing and Overseas Business.
TRIS Rating said, business diversification helps ORIX avoid losses despite the financial crisis in late 2008. In FY2009 (April 2008-March 2009), financial performance dropped substantially but ORIX remained profitable. Net income was 21.9 billion yen, down from 169.6 billion yen in FY2008. The performance in FY2009 suffered heavily from the poor performance in the two segments: Investment and Operations and Corporate Financial Services. Net income improved to 37.8 billion yen in FY2010 and 67.3 billion yen in FY2011. For the first three quarters of FY2012, net income was 68.8 billion yen, up 35.4% from the same period of FY2011. ORIX has maintained its stringent liquidity policies by maintaining an adequate cash balance and unused committed credit facilities to cover its marketable short-term debt repayments. The liquidity coverage ratio was 245% at the end of December 2011.
Supported by potential prospects in machinery and equipment leasing and auto maintenance lease industries in Thailand, ORIX has focused more on its operation in Thailand through its subsidiary, TOLC. TOLC has a long track record as a machinery and equipment leasing company in Thailand. The company was established in 1978 by a cooperative effort from ORIX, Industrial Finance Corporation of Thailand (IFCT), Asia Credit PCL, and Bangkok Insurance PLC (BKI). There were shareholding changes during the past decade due to mergers and acquisitions by the Thai shareholders. In 2010, ORIX restructured its business in Thailand by combining TOLC and an auto maintenance leasing company, ORIX Auto Leasing (Thailand) Co., Ltd. (OATC), into a new entity. The old name, TOLC, was used as the name of the new company. Currently, ORIX holds 97.4% of TOLC while the remaining part of 2.6% is held by BKI.
TOLC renders two main services: machinery and equipment leasing and auto maintenance leasing. At the end of December 2011, each business constituted approximately half of TOLC’s operating assets. ORIX has shown strong commitment to TOLC, providing business and financial support, including know-how covering, operating and risk management practices, and product innovation. The guarantee for all debts, including the proposed debentures issued, is one aspect of financial support TOLC receives as an ORIX’s subsidiary. Strong support from its parent is expected to continue for the foreseeable future. This support matches the parent company’s focus on its overseas businesses, especially in Asia, because the overseas businesses generate relatively high profits to support ORIX’s overall performance, said TRIS Rating. - End
Rating Outlook: Stable
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