TRIS Rating Co., Ltd. has revised downward the outlook of the proposed issue of up to Bt3,000 million in guaranteed debentures of BMW Leasing (Thailand) Co., Ltd. (BMWL) to “negative” from “stable”. At the same time, TRIS Rating has affirmed the “AAA” rating of the issue.
The outlook revision reflects an expected decline in the operating performance of BMW AG (BMW Group or Guarantor) due to unfavorable business conditions. Rising energy and raw material prices, the increased provision for bad debts and the falling residual value of used cars, and the strength of the euro against the US dollar have all negatively impacted the earnings of BMW Group. In addition, the economic slowdown in several markets including the US, Japan, and some European countries will be a major challenge for the Group in the coming years.
The “negative” outlook reflects the expected deterioration in the operating performance of the Guarantor, BMW AG, in the short to medium term. Several unfavorable market conditions, including high prices of raw materials and energy, coupled with an economic slowdown in several markets, might impede the growth in demand for luxury cars. In addition, the impact from the US subprime crisis is expected to negatively impact the performance of the Financial Services segment of the Group. Therefore, the BMW Group’s profitability is not expected to recover in the short to medium term.
TRIS Rating reported that the issue rating of BMWL continues to reflect the full, unconditional, and irrevocable guarantee by BMW Group, rated “A+/Negative” by Standard and Poor’s (S&P) and “A1/Negative” by Moody’s Investors Service (Moody’s). The rating also reflects BMW Group’s position as one of the leaders in worldwide luxury automobile and motorcycle production, the brand value of BMW Group’s products (BMW, MINI, and Rolls-Royce), the ability to continuously launch new models, and the strong cash flow generation of BMW Group.
The guarantee made by the BMW Group is governed by German law and is unconditional and irrevocable. The guarantee provides for the debenture holders the punctual payment of principal, interest and all other debts outstanding under the debentures. The obligations of the BMW Group under this guarantee rank pari passu with all other present and future unsecured and unsubordinated indebtedness of the Guarantor. All payments of the guaranteed amount shall be made in baht by the Guarantor under this Guarantee without any deduction or withholding.
TRIS Rating said, the operating performance of the BMW Group in the first half of 2008 was lower than expected. Though revenues in the first half of 2008 grew by 4.5% year-on-year (y-o-y), the BMW Group’s reported earnings before interest and tax margin (EBIT margin) fell to 4.5% from 7.3% in the same period last year, while the EBIT margin of its Industrial Operations dropped to 4.5% from 5.8%. The BMW Group had to set aside a special provision of euro 695 million for the falling residual value of used cars and bad debts which hurt its profit margin. Though the BMW Group still maintains a targeted EBIT margin for the automobile segment in the year 2012 at 8%-10%, the Group expects the EBIT margin in 2008 to be approximately 4%. Funds from operations of the Industrial Operations segment in the first half of 2008 dropped by 16% y-o-y, from euro 3,303 million to euro 2,826 million. However, the Group’s cash flow generating ability remains robust. -- End
Up to Bt3,000 million guaranteed debentures due 2011 Affirmed at AAA Rating Outlook: Changed to Negative from Stable
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