Under the terms of 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 diverse lines of business and sources of earnings. ORIX depends on the capital markets for its sources of funds. However, ORIX has a number of financing sources which has mitigated the risk of over relying on the capital markets for the funds it needs.
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 “Baa1” rating with a “stable” outlook from Moody’s.
The rating and/or outlook for TOLC’s guaranteed debentures could be revised upward or downward, should there be any changes in ORIX’s international scale ratings. In addition, based on TRIS Rating’s criteria, a one-notch change in an international scale rating will not necessarily translate to a one-notch change in a national scale rating.
ORIX was established in 1964 through the cooperation of five financial institutions and three trading companies. ORIX was a pioneer in the Japanese leasing industry. Through more than 50 years of operation, ORIX has diversified its product offerings and now offers a broad range of financial services in addition to leasing services. At the end of December 2014, ORIX’s total assets were 11.4 trillion yen, rising from 9.1 trillion yen at the end of FY2014 (ending March 2014) and 8.4 trillion yen at the end of FY2013. ORIX’s assets comprised 2.3 trillion yen in installment loans (21.5% of total assets), 1.3 trillion yen in investments in operating leases (11.8%), 2.9 trillion yen in investments in securities (25.4%), and 1.0 trillion yen in investments in direct financing leases (10.5%).
Currently, ORIX has six lines of business: Corporate Financial Services, Maintenance Leasing, Real Estate, Investment and Operation, Retail, and Overseas Business. After the financial crisis in 2008-2009, ORIX’s segment assets steadily declined, sliding from 7.0 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 assets in ORIX’s Real Estate segment fell continuously, dropping from 1,856 billion yen in FY2009 or 26.6% of total segment assets, to 878 billion yen at the of December 2014 or 9.5% of total segment assets. Although the assets in the Real Estate segment have been decreasing, profits in this segment have been gradually improving. Profit for the Real Estate segment improved from 0.1 billion yen in FY2011 to 18 billion yen in FY2014 and 22 billion yen for the first three quarters of FY2015. The Retail segment and Overseas Business segment have grown and compensated for the reduction in the assets in the Real Estate segment. As a result, total segment assets rose from 6.1 trillion yen at the end of FY2012 to 7.3 trillion yen at the end of FY2014. The segment assets jumped to 9.3 trillion yen at the end of December 2014 after an acquisition. ORIX began to consolidate Hartford Life Insurance K.K. in the Retail segment during the second quarter of FY2015. At the end of December 2014, in terms of segment assets, the Retail segment constituted 40.6% of segment assets, followed by the Overseas Business (24.4%) segment, Corporate Financial Services (11.7%), Real Estate (9.5%), Maintenance Leasing (7.3%), and Investment and Operation (6.5%). The Overseas Business segment has expanded substantially after the financial crisis. The assets in the Overseas Business segment soared by 49.6%, rising 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, ORIX’s financial performance dropped substantially but it remained profitable. Net income was 20.7 billion yen, down from 168.5 billion yen in FY2008. Net income began to recover after ORIX shifted its focus to business segments offering higher returns. Net income climbed 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 and increased to 187 billion yen for the first three quarters of FY2015. Net income in the first three quarters of FY2015 was 58% higher than the level during the same period of FY2014. ORIX has maintained its stringent liquidity policies by holding an adequate cash balance and unused committed credit facilities sufficient to cover the repayments of its marketable short-term debts. The liquidity coverage ratio was 361% at the end of December 2014.
ORIX has focused more on its operations in Thailand through its subsidiary, TOLC. ORIX and TOLC see good prospects in the machinery and equipment leasing segment and the auto maintenance leasing segment in Thailand. 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 services in two main lines of business: machinery and equipment leasing, and auto maintenance leasing. At the end of September 2014, TOLC’s operating assets totaled Bt16,711 million. The value of TOLC’s operating assets has increased steadily, growing 14.8% in FY2014 and 8.5% in the first half of FY2015. The operating assets comprise loans or receivables in the machinery and equipment leasing segment, and net assets for lease in the maintenance auto leasing segment. Machinery and equipment leases constituted 63% of TOLC’s operating assets at the end of September 2014. The company reported net income of Bt487 million for FY2013, rising from Bt234 million in FY2012. In FY2014, TOLC’s financial performance suffered from a slump in used car prices. Net profit dropped to Bt198 million in FY2014. The slump in used car prices has continued to affect TOLC’s financial performance in the first half of FY2015. Net income was Bt76 million for the first half of FY2015, down 35.2% from the same period in FY2014. The quality of TOLC’s machinery and equipment leasing loans has improved continuously. For TOLC’s financial leases, the ratio of non-performing loans (NPLs) to total loans dropped continuously, sliding from 3.7% at the end of FY2011 to 1.0% at the end of FY2014. The NPLs ratio maintained at 1.0% at the end of September 2014. ORIX has shown a strong commitment to TOLC. It provides business and financial support, including know-how in the areas of operations, risk management, and product innovation. The strong support from ORIX is expected to continue for the foreseeable future.
Thai ORIX Leasing Co., Ltd. (TOLC)
Issue Ratings:
TOLC154A: Bt500 million guaranteed debentures due 2015 AA+
TOLC15NA: Bt350 million guaranteed debentures due 2015 AA+
TOLC16NA: Bt1,000 million guaranteed debentures due 2016 AA+
TOLC17NA: Bt650 million guaranteed debentures due 2017 AA+
Up to Bt2,000 million guaranteed debentures due within 2020 AA+
Rating Outlook: Stable