TRIS Rating has assigned an “AA+” rating to the proposed issue of up to Bt1,000 million in guaranteed debentures made by Bangkok Mitsubishi UFJ Lease Co., Ltd. (BMUL) with “stable” outlook. The debentures are fully guaranteed by BMUL’s parent company in Japan, Mitsubishi UFJ Lease & Finance Company Limited (MUL), a company rated “A” and “A3” by Standard & Poor’s (S&P) and Moody’s Japan KK (Moody’s), 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 debentureholders of all sums payable by BMUL under the obligations of the rated debentures in the event that BMUL has no ability to pay. In addition, if there is any merger or consolidation of MUL, the successor of MUL shall assume these guaranteed obligations. In case the guarantor fails to pay the amount due after receiving notice, the debentureholders’ representatives 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 debentureholders.
The “stable” outlook for BMUL’s guaranteed debentures reflects the creditworthiness of its guarantor, MUL, which is a strategically important member of MUFG. MUL has received an “A” rating with a “stable” outlook from S&P and an “A3” rating with a “stable” outlook from Moody’s.
MUL was established in 1971 as Diamond Lease Co., Ltd. Through the merger with UFJ Central Leasing Co., Ltd. in April 2007, they renamed to MUL. After the merger, MUL became one of the largest leasing companies in Japan. As of 31 March 2012, Mitsubishi UFJ Financial Group, Inc. (MUFG) -- including Bank of Tokyo-Mitsubishi UFJ Ltd. (BTMU) and Mitsubishi UFJ Trust and Banking Corp. (MUTB) -- owned a 23.4% stake in MUL while Mitsubishi Corporation (MC) owned a 20.0% stake.
The rating of MUL, the guarantor, is supported by its strong business profile in Japan. MUL has two key strengths: 1) its status as a strategically important entity of both MUFG and MC and 2) broad range of products, services, and functions. MUL is one of the largest firms in the Japanese leasing industry. The company receives business referrals from companies affiliated with MUFG and MC. The business referrals support the company’s solid customer base. MUL’s strengths are offset by persistent downward pressure on decreasing transaction volume.
MUL’s business centers on leasing, installment sales, and various types of financing. MUL has relatively diverse sources of revenue, spread across business or operating segments: such as Operating Lease, Trading Used Equipment, Asset Management Service (e-Leasing Direct), Auto Lease, ECO related Service, Real Estate Finance, Real Estate-related Lease (Symphony), Private Finance Initiative, and Factoring. At the end of September 2012, MUL’s assets totaled 3.7 trillion yen, comprising 1.7 trillion yen in lease assets (45.7% of total assets), 1.2 trillion yen in loans (33.0% of total assets), and 0.2 trillion yen in installment sales (6.0% of total assets).
MUL’s diverse lines of business helped the company recover from the recent economic turbulence. In FY2009 (April 2008-March 2009), MUL’s financial performance dropped substantially but it remained profitable. Net income was 7.1 billion yen, down from 30.2 billion yen in FY2008. MUL’s performance in FY2009 suffered to a certain extent because credit costs jumped after the value of MUL’s real estate assets deteriorated sharply. The loss in value of the real estate assets came about during Japan's economic slump. Net income improved to 20.7 billion yen in FY2010, 25.8 billion yen in FY2011, and 34.6 billion yen in FY2012. For the first half of FY2013, net income was 21.2 billion yen, up 14.9% from the same period of FY2012. MUL has a certain percentage of short-term borrowings, which mismatches with its short-term maturity of assets. However, the liquidity risk is mitigated by careful asset liability management and the financial support that MUL is expected to receive from a number of banks, especially its related shareholders, BTMU.
MUL created a new three-year business plan that started in FY2011. In the plan, MUL identified overseas expansion as a key target. In particular, the company will beef up its efforts in environment-related businesses, vendor finance, and the buying and selling of used equipment. These new efforts are part of MUL’s bid to become "Asia's comprehensive finance company." Currently, the operating assets of MUL’s consolidated overseas subsidiaries amount to 297 billion yen, compared with the target specified in the new business plan: 300 billion yen by FY2013.
In accordance with the current business plan, and supported by prospects in the machinery and equipment leasing and auto maintenance lease industries in Thailand, MUL has focused more on its operation in Thailand through its subsidiary, BMUL. BMUL has a long track record as a machinery and equipment leasing company in Thailand. BMUL was established in 1991, as a cooperative effort with the Bangkok Bank Group in Thailand. At present, the major shareholder is MUL, owning 44% of BMUL while Bangkok Bank PLC (BBL) and its affiliated companies together hold 34%.
BMUL has two major business segments: machinery and equipment leasing and automobile maintenance leasing. BMUL’s outstanding portfolio grew substantially lately, soaring by 73% from Bt5,322 million in 2011 to Bt9,212million at the end of September 2012. At the end of September 2012, machinery and equipment leases constituted 80% of BMUL’s portfolio while the remainder was automobiles leases. MUL has shown its strong commitment to BMUL by providing business and financial support, including know-how covering operating and risk management practices and product innovation. The debt guarantee, including a guarantee for the proposed debenture issue, is one aspect of the financial support BMUL receives as a MUL’s strategic subsidiary. The strong support BMUL receives from its parent company is expected to continue for the foreseeable future. This support matches the parent company’s focus on its overseas businesses, especially in Asia.
Rating Outlook: Stable
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