TRIS Rating has affirmed the ratings of Thai ORIX Leasing Co., Ltd.’s (TOLC) guaranteed debentures at “AA+” with “stable” outlook. 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 ratings of the guaranteed debentures assigned by TRIS Rating are 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 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 debentureholders’ 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 debentureholders.
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.
The rating of ORIX, the guarantor, is supported by its strong business profile. ORIX’s key strengths are its diversified lines of business and diverse funding sources. ORIX was established in 1964 through the cooperation of five financial institutions and three 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 in addition to leasing services. At the end of March 2013, ORIX’s total assets were 8.4 trillion yen, which was composed of 2.7 trillion yen in installment loans, (31.9% of total assets), 1.4 trillion yen in investments in operating leases (16.5%), 1.1 trillion yen in investments in securities (13.0%), and 1.0 trillion yen in investments in direct financing leases (11.7%).
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 March 2013, in terms of segment assets, the Retail segment constituted 31.8% of segment assets, followed by the Overseas Business (19.5%) and Real Estate (17.9%). ORIX’s segment assets steadily declined from 6.9 trillion yen in FY2009 (April 2008-March 2009) to 6.0 trillion yen at the end of FY2012 (April 2011-March 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. The Real Estate segment assets fell from 26.7% of total segment assets in FY2009 to 22.8% at the end of FY2012 and 17.9% at the end of FY2013 (April 2012-March 2013). At the same time, ORIX has been trying to improve the profitability of other high-return segments. In FY2013, the Retail and Overseas Business segments which were the two largest segments of ORIX’s overall segment assets contributed the two highest portions of overall segment profit, or 21.9% of the 197.3 billion yen in total segment profit for the Retail segment and 26.7% for the Overseas Business segment. The Maintenance Leasing segment was also the high profit segment which generated 18.3% of total segment profit in FY2013, though employing only 9.7% of total segment assets. Segment assets rose again to 6.2 trillion at the end of FY2013, driven by the Retail and Overseas Business segments.
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 to recover, climbing from 36.5 billion yen in FY2010 to 111.9 billion yen in FY2013. ORIX has maintained its stringent liquidity policies by sustaining an adequate cash balance and unused committed credit facilities to cover its marketable short-term debt repayments. The liquidity coverage ratio was 295% at the end of March 2013, 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. Currently, 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 FY2013, based on unaudited results, TOLC had Bt13,403 million of total operating assets: loans or receivables of machinery and equipment lease business and net assets for lease of auto lease business. The machinery and equipment lease constituted 62% of TOLC’s operating assets. The operating assets rose substantially in FY2013 or up 39% from the level recorded in FY2012. The company reported net income of Bt432 million for FY2013, rising from Bt234 million in FY2012. The quality of TOLC’s machinery and equipment leasing loans has improved continuously. ORIX has shown a strong commitment to TOLC, in providing business and financial support, including know-how covering operating and risk management practices, and product innovation. Strong support from its parent company is expected to continue for the foreseeable future.
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