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 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 market for its sources of funds. However, ORIX has a number of financing sources which mitigate the risk of an overreliance 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 international scale ratings of "A-" with a "stable" outlook from Standard and Poor's and "Baa1" with a "stable" outlook from Moody's.
The ratings and/or outlook for TOLC's guaranteed debentures could be revised upward or downward, should there be any changes in ORIX's creditworthiness.
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 June 2015, ORIX's total assets were 11.3 trillion yen, rising 24% from the end of fiscal year 2014 (FY2014). ORIX's total assets were composed of 2.5 trillion yen in installment loans (22% of total assets), 2.6 trillion yen in investments in securities (23%), 1.3 trillion yen in investments in operating leases (11.9%), and 1.2 trillion yen in investments in direct financing leases (10.7%).
ORIX has six lines of business: Corporate Financial Services, Maintenance Leasing, Real Estate, Investment and Operations, Retail, and Overseas Business. After the financial crisis in 2008-2009, ORIX's segment assets steadily declined from 7 trillion yen at the end of FY2009 to 6.1 trillion yen 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 amount of 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 803 billion yen at the of June 2015 or 9% of total segment assets. The retail segment and Overseas Business segment have grown and compensated for the reduction in the amount of assets in the Real Estate segment. The Overseas Business segment has expanded substantially after the financial crisis. The amount of 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. 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 June 2015, in terms of segment assets, the Retail segment constituted 39.9% of segment assets, followed by the Overseas Business segment (24.8%), Corporate Financial Services (12.1%), Real Estate (9%), Maintenance Leasing (7.6%), and Investment and Operation (6.7%).
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 187.4 billion yen in FY2014 and increased 25% to 234.9 billion yen in FY2015, and 81.5 billion yen for the first quarters of FY2016. The return on average assets also improved continuously from 0.99% in FY2012 to 2.9% for the first quarter of FY2016. ORIX has maintained its stringent liquidity policies by holding an adequate cash balance and having unused committed credit facilities sufficient to cover the repayments of its marketable short-term debts. The liquidity coverage ratio was 386% at the end of June 2015.
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 PLC, and Bangkok Insurance PLC (BKI). There have been several shareholding changes during the past decades, 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 FY2015, TOLC's operating assets totaled Bt17,610 million. The value of TOLC's operating assets has increased steadily, growing around 14% in the 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 FY2015. 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 FY2015. Net income was Bt195 million in FY2015. For TOLC's financial leases, the ratio of non-performing loans (NPLs) to total loans has dropped continuously, sliding from 3.7% at the end of FY2011 to 1% at the end of FY2014. The economic slowdown pushed the NPL ratio up to 1.4% at the end of FY2015 but the current level of NPLs is expected to be manageable.
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:
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+
TOLC184A: Bt1,500 million guaranteed debentures due 2018 AA+
TOLC204A: Bt500 million guaranteed debentures due 2020 AA+
Rating Outlook: Stable