TRIS Rating has assigned an issue rating of “AA+” to the proposed issue of up to Bt1,500 million in guaranteed debentures of Thai ORIX Leasing Co., Ltd.’s (TOLC). At the same time, TRIS Rating has affirmed the ratings 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 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 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.
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 September 2013, ORIX’s total assets were 8.4 trillion yen, which was composed of 2.3 trillion yen in installment loans (27.5% of total assets), 1.4 trillion yen in investments in operating leases (17.0%), 1.1 trillion yen in investments in securities (13.0%), and 1.0 trillion yen in investments in direct financing leases (12.1%).
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 2013, in terms of segment assets, the Retail segment constituted 30.5% of segment assets, followed by the Overseas Business (24.9%) and Real Estate (15.5%). The proportion of Overseas Business rose significantly from 20.7% at the end of FY2013 (April 2012-March 2013). ORIX’s segment assets steadily declined from 6.4 trillion yen in FY2010 (April 2009-March 2010) to 6.1 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 market is highly volatile, and subject to adverse changes in the economy. The Real Estate segment assets fell from 26.6% of total segment assets in FY2010 to 15.5% at the end of September 2013. Although the Real Estate segment assets have been decreasing, segment profit has been gradually improving. ORIX has been trying to improve the profitability of other high-return segments. For the first half of FY2014, 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 22.6% of the 125.5 billion yen in total segment profit for the Retail segment and 27.2% for the Overseas Business segment. The expansions of the Retail and Overseas Business segments have been able to compensate the reduction of the Real Estate segment assets. As a result, segment assets rose to 6.4 trillion at the end of FY2013 and 6.7 trillion at the end of September 2013.
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. In the first half of FY2014, net income was 80.4 billion yen, improving by 34.4% over the same period 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 314% at the end of September 2013, up from 295% at the end of FY2013.
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. Based on unaudited results as of September 2013, TOLC had Bt14,755 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 increased by 10.1% in the first half of FY2014 after rose substantially in FY2013 or up 39.4% from the level recorded in FY2012. The company reported net income of Bt487 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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