TRIS Rating has affirmed the rating of the guaranteed debentures, worth Bt1,000 million, issued by Bangkok Mitsubishi UFJ Lease Co., Ltd. (BMUL) at “AA+” with “stable” outlook. The debentures are fully guaranteed by BMUL’s parent company in Japan, Mitsubishi UFJ Lease & Finance Co., Ltd. (MUL), a company rated “A” and “A3” by Standard & Poor’s and Moody’s Investors Service (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. The “stable” outlook for BMUL’s guaranteed debentures reflects the creditworthiness of its guarantor, MUL, which is a strategically important affiliate of Mitsubishi UFJ Financial Group, Inc. (MUFG). MUL has received an “A” rating with a “stable” outlook from Standard & Poor’s and an “A3” rating with a “stable” outlook from Moody’s.
Under the terms of the guarantee agreement, which is governed by the laws of Japan, the guarantor unconditionally and irrevocably guarantees to make payment promptly 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 rating of MUL, the guarantor, is supported by its strong business profile in Japan. MUL has two key strengths. The first is its status as a strategically important affiliate of both MUFG and Mitsubishi Corporation (MC). The second strength is its 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 and build MUL’s solid customer base.
MUL was established in 1971 as Diamond Lease Co., Ltd. After a 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. MUL’s business centers on leasing, installment sales, and various types of financing. MUL has relatively diverse sources of revenue, spread across many business units or operating segments. The major segments are: operating lease, trading used equipment, asset management service (e-Leasing direct), auto lease, ECO-related services, real estate finance, real estate-related lease (Symphony), private finance initiative, and factoring. In FY2013 (April 2012 - March 2013), MUL’s total assets grew by 13.5% from the previous year. At the end of December 2013, MUL’s total assets grew by 4.0% from the end of FY2013. Total assets were 4.3 trillion yen, comprising 2.2 trillion yen in lease assets (50.7% of total assets), 1.3 trillion yen in loans (30.0% of total assets), and 0.2 trillion yen in installment sales (5.1% of total assets) and 0.6 trillion yen in other assets (14.2% of total assets). The number of new lease transaction in Japan has shown a trend of improvement since FY2012. MUL’s transaction volume outperformed the average of the industry due to MUL’s solid customer base.
MUL’s diverse lines of business helped the company recover from the recent economic turbulence. In FY2009, 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 because credit costs jumped after a sharp deterioration in the value of MUL’s real estate assets. The loss in the value of the real estate assets came about during Japan's economic slump. MUL’s profitability improved continuously. Net income increased to 20.7 billion yen in FY2010, 25.8 billion yen in FY2011, and 34.6 billion yen in FY2012. In FY2013, net income was 36.0 billion yen, increasing by 4.0% from the same period of FY2012. For the first nine months of FY2014 (ended in December 2013), net profit slightly declined to 28.8 billion yen, down 2.1% from the same period last year, because net profit in the first nine months of FY2013 was boosted by one time gain from private equity business.
MUL has a certain percentage of short-term borrowings, which causes a mismatch with the short-term maturity of its assets. However, MUL’s liquidity risk is mitigated in two ways: careful asset liability management, and the financial support that MUL expects to receive from a number of banks, especially its affiliated shareholder, Bank of Tokyo-Mitsubishi UFJ Ltd. (BTMU).
MUL created a medium term management plan – “Vision 2013”. In the plan, MUL identified overseas expansion as a key objective. In particular, the company will beef up its efforts in environment-related businesses, strengthen global asset business, and expands its efforts in used equipment trade. These new efforts are part of MUL’s bid to become "Asia's comprehensive finance company”. At the end of March 2013, the operating assets of MUL’s consolidated overseas subsidiaries amounted to 635 billion yen, a significant 136% increase compared with March 2012. At the end of September 2013, the operating assets of MUL’s consolidated overseas subsidiaries amounted to 756 billion yen, up 19% from March 2013 and accounted for 20% of MUL’s total operating assets. One reason for the big jump in the operating asset of the overseas subsidiaries was a recent acquisition. MUL bought leasing companies in several countries, consistent with its strategic plan.
In accordance with the business plan that MUL will became “Asia’s comprehensive finance company, 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 Bangkok Bank PLC (BBL) in Thailand. At present, BMUL’s major shareholder is MUL. MUL owns 44% of BMUL while 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 87% from Bt5,322 million in 2011 to Bt9,960 million in 2012. At the end of September 2013, its outstanding portfolio had climbed to Bt12,619 million, up 27% from the previous year. At the end of September 2013, machinery and equipment leases constituted 83% of BMUL’s portfolio while the remainder was automobile leases. MUL has shown its strong commitment to BMUL by providing business and financial support, including know-how covering operating procedures 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 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.
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