TRIS Rating Co., Ltd. has downgraded the rating of the proposed issue of up to Bt3,000 million in guaranteed debentures of BMW Leasing (Thailand) Co., Ltd. (BMWL) to “AA+” from “AAA” with “negative” outlook. The downgrade reflects the decline in the operating performance of the debentures’ Guarantor, BMW AG (BMW Group), due to unfavorable business conditions. The weakening automobile sales volume coupled with the increased provision for bad debts and the falling residual value of used cars caused the earnings of the BMW Group in Q3/2008 to continue to be weaker than initially expected. In addition, the continuing economic slowdown in several of its major markets, including the US, Japan, and Europe, will be a major negative factor for the Group in the coming years.
TRIS Rating reported that the issue rating of BMWL continues to reflect the full, unconditional, and irrevocable guarantee by BMW Group, rated “A/Stable” by Standard and Poor’s (S&P) and “A2/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 acceptable 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 the debenture holders with 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.
The “negative” outlook of BMWL’s debentures reflects the gloomy business environment, which may further deteriorate the operating performance of the Guarantor, BMW AG, in the short to medium term. An economic slowdown is expected to impede the growth in demand for luxury cars, while 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 said, the operating performance of the BMW Group in Q3/2008 was weaker than expectation. Revenues of the Group dropped by 8.6% year-on-year (y-o-y) while the revenues of the automobile segment declined more than 15% y-o-y. The BMW Group’s reported earnings before interest and tax margin (EBIT margin) fell significantly to 3.1% from 7.1% and the EBIT margin of its automobile segment dropped to 1.3% from 6.0% y-o-y, respectively. Funds from operations (FFO) of the industrial operations segment also declined from euro 1,517 million in Q1/2008 to euro 1,238 million and euro 636 million in Q2/2008 and Q3/2008, respectively. During the first nine months of 2008, the Group had to set aside a large provision of euro 1,037 million for the falling residual value of used cars and bad debts, which hurt its profit margin significantly. The operating performance of both the financial services and the automobile businesses of the Group are not expected to recover in the fourth quarter of 2008. Therefore, the probability that the Group will achieve its revised target return on sales on a Group level of at least 4% in 2008 is quite low. -- End
Up to Bt3,000 million guaranteed debentures due 2011 Downgraded to AA+ from AAA Rating Outlook: Negative
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