TRIS Rating affirms the ?AAA? rating with a ?stable? outlook on the guaranteed debentures issued by Bangkok Mitsubishi UFJ Lease Co., Ltd. (BMUL). The debentures are fully guaranteed by BMUL?s parent company in Japan, Mitsubishi Hitachi Capital Inc. (MHCC) (rated ?A-/Stable? by S&P Global Ratings). The rating on the guaranteed debentures is based on the credit quality of the guarantor, MHCC. The guarantee is unconditional and irrevocable.
KEY RATING CONSIDERATIONS
Unconditional and irrevocable guarantee
Under the terms of the guarantee agreement, which is governed by the laws of Japan, the guarantor unconditionally and irrevocably guarantees to pay promptly to the debentureholders 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 MHCC, the successor of MHCC shall assume these guaranteed obligations. In the event that the guarantor fails to pay the amount due after receiving notice, the debentureholders? representatives can commence legal action against the guarantor in a court in Japan for the amount in default. The guarantee cannot be amended or terminated without the unanimous consent of the debentureholders.
MUFG and MC will continue to support MHCC
We expect Mitsubishi UFJ Financial Group Inc. (MUFG) and Mitsubishi Corporation (MC) will continue to support MHCC?s business as we view that MHCC is a strategically important subsidiary of MUFG. MHCC is an affiliate of MUFG Group, which holds a 14.2% stake in MHCC, while MC holds a 17.7% stake.
MHCC?s solid and expanding customer base is a result of business referrals from MUFG and MC. The expertise and customer franchise of MUFG and MC have helped MHCC expand its finance and leasing businesses domestically and internationally and across various industries, including logistics, real estate, aviation, environment and energy, healthcare, and infrastructure.
One of the largest global leasing operators following the merger
On 1 April 2021, Mitsubishi UFJ Lease and Finance Co., Ltd. (MUL) and Hitachi Capital Inc. (HC) merged to form MHCC as the new entity. The operating assets of the combined entity stood at JPY 8.3 trillion while total assets were approximately JPY10 trillion1. In the fiscal year (FY) 2020, ending March 2021, MHCC reported combined net income of JPY87.3 billion1.
In the past year, the impacts of the Coronavirus Disease 2019 (COVID-19) pandemic have affected the operating performance of both MUL and HC. Both entities saw a material drop in new business volume in FY 2020. The aviation business segment of MUL was most impacted, with a decrease in lease revenue and an increase in credit cost, which contributed to a 21.8% drop in net income. HC, on the other hand, reported net income growth of 4.3%, driven by steady performance in the environment and energy segment in Japan.
Strong liquidity profile
MHCC?s strong liquidity profile is underpinned by its good relationships with financial institutions including the MUFG Group. MHCC also has accesses to diversified funding, in the forms of bonds, commercial papers (CPs), securitization, and borrowings. Foreign currency-denominated borrowings remain moderate, constituting 40% of its total borrowings at the end of March 2021. Despite MHCC?s high reliance on wholesale funding and short-term funding, which we view as having higher funding risk, its status as a strategically important subsidiary of the MUFG Group helps mitigate the funding risk, in our view.
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BASE-CASE ASSUMPTIONS
? The credit rating on MHCC assigned by S&P Global Ratings will remain unchanged.
? The unconditional and irrevocable guarantee undertaken by MHCC on BMUL?s debentures will remain intact.
RATING OUTLOOK
The ?stable? outlook of the issue rating on BMUL?s guaranteed debentures reflects the creditworthiness of the guarantor, MHCC, a strategically important affiliate of the MUFG Group. MHCC has an ?A-? rating with a ?stable? outlook from S&P Global Ratings.
RATING SENSITIVITIES
The rating and/or outlook on BMUL?s guaranteed debentures could be revised downward should there be any deterioration in MHCC?s creditworthiness.
COMPANY OVERVIEW
MHCC was established in 1971 as Diamond Lease Co., Ltd. After a merger with UFJ Central Leasing Co., Ltd. in April 2007, the company was renamed Mitsubishi UFJ Lease & Finance Co., Ltd. (MUL). On 1st April 2021, MUL merged with HC to form MHCC. As of 31 March 2021, MUFG and its affiliated banks, including MUFG Bank and Mitsubishi UFJ Trust and Banking Corp., owned a combined 14.2% stake in MHCC while MC and HC owned 17.7% and 13.57% stakes, respectively.
MHCC sees Thailand as a growing market. BMUL, a subsidiary, is perceived as the means to capture new opportunities in Thailand. BMUL has a long track record as a machinery and equipment leasing company in Thailand. BMUL was established in 1991 through a cooperative effort with Bangkok Bank PLC (BBL) in Thailand. BMUL has two major business segments: machinery and equipment leasing, and automobile maintenance leasing. BMUL?s major shareholder is MHCC. MHCC owns 44% of BMUL while BBL and its affiliated companies together hold 34%.
MHCC provides extensive business and financial support to BMUL. For example, MHCC provides operating procedures and risk management practices, plus new innovative products. Debt guarantees, such as the guarantee on the debentures, are one example of the kind of financial support BMUL receives as MHCC?s strategic subsidiary.
The strong support BMUL receives from its parent company is expected to continue in the foreseeable future. This support is consistent with MHCC?s emphasis on new overseas opportunities.
RELATED CRITERIA
- Group Rating Methodology, 13 January 2021
- Nonbank Financial Institution Methodology, 17 February 2020
Bangkok Mitsubishi UFJ Lease Co., Ltd. (BMUL)
Issue Rating:
BMUL218A: THB1,000 million guaranteed debentures due 2021 AAA
Rating Outlook: Stable