TRIS Rating Assigns “AA+/Stable” Rating to Guaranteed Debt Worth Up to Bt1,500 Million of “TOLC”

General News Tuesday November 20, 2012 13:00 —TRIS News Release

TRIS Rating Co., Ltd. has assigned an issue rating of “AA+” to the proposed issue of up to Bt1,500 million in guaranteed debentures by Thai ORIX Leasing Co., Ltd. (TOLC). At the same time, TRIS Rating has affirmed the issue rating of TOLC’s guaranteed debentures at “AA+”. The outlook remains “stable”. The debentures are fully guaranteed by TOLC’s parent company, ORIX Corporation (ORIX) in Japan, a company rated “A-” and “Baa2” by Standard & Poor’s and Moody’s Investor Services (Moody’s), respectively. The rating of the guaranteed debentures assigned by TRIS Rating 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 a “stable” outlook from Standard and Poor’s and a “Baa2” rating with a “stable” outlook from Moody’s Investor Services.

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 lines of business and diverse funding sources. 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 and now offers a broad range of financial services other than leasing services. At the end of September 2012, ORIX’s total assets were 8.2 trillion yen, which was composed of 2.8 trillion yen in installment loans, (33.9% of total assets), 1.4 trillion yen in investments in operating leases (16.7%), and 1.1 trillion yen in investments in securities (13.0%).

TRIS Rating said, currently, ORIX has six lines of business: Corporate Financial Services, Maintenance Leasing, Real Estate, Investment and Operations, Retail, and Overseas Business. At the end of September 2012, in terms of segment assets, the Retail segment constituted 32.0% of segment assets, followed by Real Estate (20.9%) and Overseas Business (16.0%). ORIX’s segment assets have steadily declined from 6.9 trillion yen in FY2009 (April 2008-March 2009) to 6.1 trillion yen at the end of September 2012. The reduction reflects ORIX intention to reduce its exposure to real estate assets. The Real Estate segment is highly volatile, and subject to adverse changes in the economy. Real Estate segment assets fell from 26.7% of total segment assets in FY2009, to 20.9% at the end of September 2012. At the same time, ORIX has been trying to improve the profitability of other high-return segments. For the first half of FY2013, the Retail segment contributed the highest portion of overall segment profit, or 24.8% of the 95.2 billion yen in total segment profit. The contribution improved from 13.6% in FY2012. The contribution from the Investment and Operations segment also improved, climbing from 11.2% of total segment profit in FY2012 to 17.2% for the first half of FY2013. Because the profitability of the Retail and Investment and Operations segments improved, the profit contribution from the Oversea Business segment now comprises a smaller portion of total segment profit. The contribution from the Oversea Business segment fell to 23.8% for the first half of FY2013. The Oversea Business segment was the largest contributor to total segment profit, comprising 34.9% of total segment profit in FY2012.

Diversification has helped ORIX avoid losses despite the financial crisis in late 2008. In FY2009, financial performance dropped substantially but ORIX remained profitable. Net income was 20.7 billion yen, down from 168.5 billion yen in FY2008. Net income then began recover, climbing to 36.5 billion yen in FY2010, 66.0 billion yen in FY2011, and 83.5 billion yen in FY2012. For the first half of FY2013, net income was 59.8 billion yen, up 33.9% from the same period of FY2012. 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 285% at the end of the first half of FY2013, nearly the same level of 289% recorded at the end of FY2012. The liquidity coverage ratio has improved from 204% at the end of FY2011.

Supported by prospects in the machinery and equipment leasing plus auto maintenance leasing segments in Thailand, ORIX has focused more on its operations 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 through a cooperative effort by ORIX, Industrial Finance Corporation of Thailand (IFCT), Asia Credit PCL, and Bangkok Insurance PLC (BKI). There have been several 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. As of September 2012, ORIX holds 96.6% of TOLC, while the remaining part of 3.4% is held by BKI.

TOLC renders two main services: machinery and equipment leasing, and auto maintenance leasing. At the end of FY2012, TOLC had Bt10,316.7 million in total assets; machinery and equipment lease constituted approximately 60% of TOLC’s operating assets. The company reported net income of Bt235.4 million for FY2012. The quality of TOLC’s machinery and equipment leasing loans has improved. ORIX has shown a 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 when it is necessary, including the proposed debentures issue, is one example of the financial support TOLC receives as ORIX’s subsidiary. Strong support from its parent company is expected to continue for the foreseeable future, said TRIS Rating. — End.

Thai ORIX Leasing Co., Ltd. (TOLC)
Issue Ratings:
TOLC154A: Bt500 million guaranteed debentures due 2015 Affirmed at AA+
Up to Bt1,500 million guaranteed debentures due within 2016 AA+
Rating Outlook: 	                                           Stable
TRIS Rating Co., Ltd./www.trisrating.com
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