TRIS Rating has affirmed the ratings of TISCO Tokyo Leasing Co., Ltd. (TTL)’s guaranteed debentures at “AA+” with “stable” outlook. 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 ratings of the guaranteed debentures issued by TTL 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 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 an “A+” rating with a “stable” outlook from JCR and an “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 positions in the medium term.
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 2014, TC-Lease’s assets totalled 2.9 trillion yen, comprising 1.8 trillion yen in lease assets (62% of total assets), 0.2 trillion yen in installment sales receivable (7%), 0.6 trillion yen in loan receivables, investment, and operating investment assets (21%), and cash and other assets (10%).
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%).
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 (April 2010-March 2011) through FY2013. Total consolidated assets grew by 2.4% and 3.5% in FY2010 and FY2011, respectively, and rose markedly by 9% and 17% to reach 2.5 trillion yen in FY2012 and 2.9 trillion yen in FY2013. Net income also increased by 10.8% in FY2011, 10.5% in FY2012, and 14% in FY2013, climbing from 24 billion yen in FY2010 to 33 billion yen in FY2013.
TC-Lease has a relatively 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 has enhanced its competitiveness in the leasing segment, bolstered the financing segment, and expanded overseas. The company has expanded activities in the automobile leasing business in Japan and overseas. As of FY2013, the operating assets of TC-Lease’s overseas business department amounted to about 170 billion yen, accounting for about 6.4% 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 in Thailand with TISCO Financial Group (TISCO). At present, TTL is a joint venture between TISCO and TC-Lease, as these two companies each owns 49% of TTL. Sompo Japan Nipponkoa Brokers (Thailand) Co., Ltd. (SJNB) holds the remaining 2% stake.
TTL renders machinery and equipment hire purchase and leasing services. TTL’s loan portfolio grew substantially, soaring by 46% and 28% from Bt3,404 million in 2011 to Bt4,967 million in 2012 and Bt6,373 million in 2013. 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 debentures, 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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