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 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 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 FY2014 (ending March 2014), ORIX’s total assets were 9.1 trillion yen, rising from 8.4 trillion yen at the end of FY2013. ORIX’s total assets were composed of 2.3 trillion yen in installment loans (25.5% of total assets), 1.4 trillion yen in investments in operating leases (15.2%), 1.2 trillion yen in investments in securities (13.4%), and 1.1 trillion yen in investments in direct financing leases (12.1%).
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.
Currently, ORIX has six lines of business: Corporate Financial Services, Maintenance Leasing, Real Estate, Investment and Operations, Retail, and Overseas Business. After the financial crisis in 2008-2009, ORIX’s segment assets steadily declined from 6.9 trillion yen at the end of FY2009 to 6.1 trillion at the end of FY2012. The reduction reflects ORIX’s 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 continuously from 26.6% of total segment assets in FY2009 to 13.2% at the end of FY2014. Although the Real Estate segment assets have been decreasing, segment profit has been gradually improving. Segment profit for Real Estate improved from 0.1 billion yen in FY2011 to 18 billion yen in FY2014. 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 from 6.1 trillion yen at the end of FY2012 to 7.3 trillion yen at the end of FY2014. At the end of FY2014, in terms of segment assets, the Retail segment constituted 29.8% of segment assets, followed by the Overseas Business (27.1%), Corporate Financial Services (13.6%), Real Estate (13.2%), Maintenance Leasing (8.5%), and Investment and Operation (7.8%). Overseas Business remains the main business line that ORIX has been expanding after the financial crisis. The segment assets of Overseas Business rose substantially by 49.6% from 1.3 trillion yen at the end of FY2013 to 2 trillion yen at the end of FY2014. The increase was mainly due to the acquisition of Robeco Groep N.V., an asset management company in the Netherlands, in FY2014.
Diversification has helped ORIX avoid losses despite the financial crisis. 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 after a shift to focus on high-return business segments, climbing from 36.5 billion yen in FY2010 to 111.9 billion yen in FY2013. Net income improved substantially to 186.8 billion yen in FY2014. 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 399% at the end of FY2014, 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 3.4% is held by BKI.
TOLC renders two main services: machinery and equipment leasing, and auto maintenance leasing. At the end of FY2014, TOLC had Bt15,395 million of total operating assets. The operating assets increased by 14.8% in FY2014 after rising substantially in FY2013 or up 39.4% from the level recorded in FY2012. The operating assets comprised loans or receivables of machinery and equipment lease business and net assets for lease of auto lease business. The machinery and equipment lease constituted 62.3% of TOLC’s operating assets at the end of FY2014. The company reported net income of Bt487 million for FY2013, rising from Bt234 million in FY2012. In FY2014, TOLC’s financial performance suffered from the slump of the used car prices, causing the net profit to drop to Bt198 million in FY2014. The quality of TOLC’s machinery and equipment leasing loans has improved continuously. The ratio of non-performing loans (NPL) to total loans for financial leases continuously dropped from 3.7% at the end of FY2011 to 1% at the end of FY2014. 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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