TRIS Rating has affirmed the ratings of TISCO Tokyo Leasing Co., Ltd.’s (TTL) 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 at least 75% of all the votes of the debentureholders.
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 markets overseas. At the end of March 2016, TC-Lease’s assets totalled 3.3 trillion yen. The balances of operating assets by segment are as follow: 2,241 billion yen for the leasing and installment sales segment (67.6% of total assets), 724 billion yen for the financing segment (21.8%), and 25 billion yen for other businesses (0.8%).
The “stable” outlook for TTL’s guaranteed debentures reflects the creditworthiness of its guarantor, TC-Lease, which has received international ratings of “A+” with a “stable” outlook from JCR and “A” 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 position and financial position in the medium term. The ratings and/or outlook for TTL’s guaranteed debentures could be revised upward or downward should there be a favorable or unfavorable change in TC-Lease’s creditworthiness.
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 Mizuho Group (holding a 35.2% stake in total) and ITOCHU Corporation (25%).
TC-Lease has more lines of business after the merger. It has been able to grow steadily and improve its business and financial profile starting in fiscal year 2010 (FY2010 -- April 2010-March 2011) and continuing through the end of FY2015. Total consolidated assets increased from 2.2 trillion yen in FY2010 to 3.3 trillion yen in FY2015, a compound annual growth rate (CAGR) of 8.7%. Net income also rose, jumping from 24 billion yen in FY2010 to 40 billion yen in FY2015. At the end of FY2015, TC-Lease’s total consolidated assets grew by 5.3% and net income rose by 17.3% from the end of FY2014.
TC-Lease has a relatively high level of leverage compared with its peers. At the same time, TC-Lease has some mismatch in the short-term maturities of assets and liabilities. However, TC-Lease mitigates liquidity risk through careful asset and liability management. TC-Lease also receives financial support from a number of banks, especially its major shareholder and main bank, Mizuho Bank.
TC-Lease has enhanced its competitiveness in the leasing segment, bolstered the financing segment, and expanded overseas. The company has expanded in the automobile leasing segment in Japan and overseas. As of FY2013, the operating assets of TC-Lease’s international business amounted to about 170 billion yen, accounting for about 6.5% of TC-Lease’s consolidated operating assets. The value of the company’s international operating assets has enlarged steadily, rising to 261 billion yen at the end of FY2014, or 9% of consolidated operating assets, and 275 billion yen at the end of FY2015, or 9.2% of 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. TTL was established in 1993. TC-Lease and TTL see good prospects in the machinery and equipment leasing segment in Thailand. TTL has a long track record as a machinery and equipment leasing company. TTL also has a long history of 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 own 49% of TTL. Sompo Japan Nipponkoa Brokers (Thailand) Co., Ltd. (SJNB) holds the remaining 2%.
TTL renders machinery and equipment hire purchase and leasing services. TTL’s loan portfolio grew by 4.35% to Bt8,602 million in 2015 from Bt8,244 million in 2014. 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, as well as 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 TC-Lease. 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 TTL with TISCO’s strategy to serve its corporate client base.
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