TRIS Rating has assigned a “AA+” rating to the proposed issue of up to Bt1,000 million in guaranteed debentures made by TISCO Tokyo Leasing Co., Ltd. (TTL) with “stable” outlook. The new issue rating is to replace TTL’s proposed issue of up to Bt1,000 million in guaranteed debentures, recently assigned by TRIS Rating on 7 August 2013. The company has decided to extend the term of the debentures from up to three years (due within 2016) to up to five years (due within 2018).
The debentures are fully guaranteed by TTL’s parent company in Japan, Century Tokyo Leasing Corporation (TC-Lease). TC-Lease is rated “A+” and “A” by Japan Credit Rating Agency, Ltd. (JCR) and Rating and Investment Information, Inc. (R&I), respectively. The rating of the guaranteed debentures issued by TTL 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 TTL under the obligations of the rated debentures in the event that TTL has no ability to pay. In addition, if there is any merger or consolidation of TC-Lease, the successor of TC-Lease 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 TTL’s guaranteed debentures reflects the creditworthiness of its guarantor, TC-Lease, which has received a “A+” rating with a “stable” outlook from JCR and a “A” rating with a “stable” outlook from R&I. The outlook also reflects TC-Lease’s improving business and financial performance during the past three fiscal years, and its ability to sustain its market and financial position in the medium term.
On 1 April 2009, TC-Lease was established through a merger between Century Leasing System, Inc. and Tokyo Leasing Co., Ltd. Currently, its major shareholders are ITOCHU Corporation (holding a 25% stake), Nippon Tochi-Tatemono Co., Ltd. (11%), KSO Co., Ltd. (9%), Mizuho Bank, Ltd. (4%), and Nippon Life Insurance Company (2%).
The rating of TC-Lease, the guarantor, is supported by its business profile in Japan, because TC-Lease is one of the leading firms in the Japanese leasing industry. TC-Lease has diversified geographically by expanding into several overseas markets. At the end of March 2013, TC-Lease’s assets totalled 2.5 trillion yen, comprising 1.5 trillion yen in lease assets (60% of total assets), 0.2 trillion yen in installment sales (8%), 0.6 trillion yen in other financing (22%), and other assets (10%).
TC-Lease has more diverse lines of business after the merger. It has been able to grow steadily and improve its business and financial profile since FY2010 through FY2012. Total consolidated assets grew by 2.4% and 3.5% in FY2010 and FY2011, respectively, and rose markedly by 9% in FY2012 to reach 2.5 trillion yen. Net income also increased by 10.8% in FY2011 and 10.5% in FY2012, climbing from 24 billion yen in FY2010 to 26 billion yen in FY2011 and 29 billion yen in FY2012. The double-digit year-on-year (y-o-y) growth in net income was driven by increase in non-operating income. The rise in non-operating income was mostly from the earnings of affiliates and foreign exchange gains.
TC-Lease has relative high leverage when compared with its peers. At the same time, TC-Lease also has some mismatch in short-term maturity of assets and liabilities. However, TC-Lease mitigates its liquidity risk through careful asset liability management. TC-Lease also receives financial support from a number of banks, especially its related shareholders, ITOCHU Corporation and Mizuho Bank.
TC-Lease plans to enhance its competitiveness in the leasing segment, bolster the financing segment, and expand overseas. The company will further expand activities in the automobile leasing business in Japan and overseas. Currently, the operating assets of TC-Lease’s consolidated overseas subsidiaries amount to about 190 billion yen, accounting for about 9% of TC-Lease’s consolidated operating assets.
According to TC-Lease’s current business plan, the company intends to place more emphasis on its operations in Thailand, through TTL, which was established in 1993. TC-Lease and TTL see good prospects in the machinery and equipment leasing in Thailand. TTL has a long track record as a machinery and equipment leasing company in Thailand. TTL also has a long cooperation with TISCO Financial Group (TISCO) in Thailand. At present, TTL is a joint venture between TISCO and TC-Lease, as these two companies each own 49% of TTL. Sompo Japan Services (Thailand) Co., Ltd. (SJS) holds the remaining 2% stake.
TTL renders machinery and equipment leasing and hire purchase services. TTL’s loan portfolio grew substantially, soaring by 46% from Bt3,404 million in 2011 to Bt4,967 million in 2012. TC-Lease and TISCO have each shown their strong commitment to TTL by providing business and financial support under the joint-venture agreement. TC-Lease and TISCO provide 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 TTL receives as a strategic subsidiary of both TC-Lease and TISCO. The strong support TTL receives from its parent companies is expected to continue for the foreseeable future. This support matches TC-Lease’s focus on its overseas expansion efforts, especially in Asia, and the support aligns with TISCO’s strategy to serve its corporate client base.
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