TRIS Rating Affirms Guaranteed Debt Rating and Outlook of “BMUL” at “AA+/Stable”

Friday 12 February 2016 10:11
TRIS Rating has affirmed the "AA+" rating of the guaranteed debentures issued by Bangkok Mitsubishi UFJ Lease Co., Ltd. (BMUL) with "stable" outlook. The debentures are fully guaranteed by BMUL's parent company in Japan, Mitsubishi UFJ Lease & Finance Co., Ltd. (MUL), a company rated "A" and "A3" by Standard & Poor's and Moody's Investors Service (Moody's), respectively. The rating of the guaranteed debentures, as assigned by TRIS Rating, is based on the credit quality of the guarantor and the unconditional and irrevocable guarantee of the debentures.

Under the terms of the guarantee agreement, which is governed by the laws of Japan,the guarantor unconditionally and irrevocably guarantees to make payment promptly to the debentureholders of 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 MUL, the successor of MUL shall assume these guaranteed obligations. In case 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.

The ratings of MUL, the guarantor, are supported by its strong business profile in Japan. MUL has three key strengths. The first is its status as a strategically important affiliate of both Mitsubishi UFJ Financial Group, Inc. (MUFG) and Mitsubishi Corporation (MC). As a strategically important affiliate, MUL has a high probability to receive extraordinary financial support from MUFG if needed. The second strength is MUL's broad range of products, services, and functions. MUL is one of the largest firms in the Japanese leasing industry. It has a strong domestic franchise owing to its affiliation with MUFG. MUL receives business referrals from companies affiliated with MUFG and MC. The business referrals support and build MUL's already solid customer base. The third strength is MUL's diversified sources of earnings, owing to its overseas expansion efforts.

The "stable" outlook for BMUL's guaranteed debentures reflects the creditworthiness of its guarantor, MUL, which is a strategically important affiliate of MUFG. MUL has an "A" rating with a "negative" outlook from Standard and Poor's and an "A3" rating with a "stable" outlook from Moody's.

The rating and/or outlook for BMUL's guaranteed debentures could be revised upward or downward should there be any change in MUL's creditworthiness.

MUL 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 MUL. As of 31 March 2015, MUFG and its affiliated banks, including Bank of Tokyo-Mitsubishi UFJ Ltd. (BTMU) and Mitsubishi UFJ Trust and Banking Corp., owned a combined 23% stake in MUL, and MC owned a 20% stake.

As of 30 September 2015, MUL had 5.1 trillion yen in total assets and 4.6 trillion yen in total operating assets. MUL has offices worldwide. Its overseas subsidiaries are mainly in Asia and the United States (US). MUL has a solid customer base due to business referrals from companies under the corporate umbrellas of MUFG and MC. MUL's main lines of business are leasing and installment sales to corporate customers and financial services, including eco-related service, trading of used equipment, and other services.

In April 2014, MUL announced a new three-year business plan to boost its profitability. The plan calls for it to expand its international operations through organic and via acquisitions and alliance. To this end, MUL acquired operating lease companies in the US and Europe. For example, MUL bought an aircraft engine leasing company and a marine container leasing company. At the end of September 2015, the operating assets of MUL's overseas subsidiaries amounted to 1,467 billion yen. The operating assets of its overseas subsidiaries accounted for 32% of MUL's operating assets, rising from 31% at the end of March 2015 and 21% at the end of March 2014. MUL is striving to expand its customer base while restructuring its domestic and overseas operations.

In fiscal year (FY) 2009 (April 2008-March 2009), MUL's financial performance dropped substantially due to the worldwide economic downturn. Net income was 7.1 billion yen, down from 30.2 billion yen in FY2008. However, MUL remained profitable even during these times of turbulence and has never recorded a net loss. MUL recorded net income of 37.7 billion yen in FY2014, rising to 44.1 billion yen in FY2015. For the first six months of FY2016 (ended September 2015), net profit increased to 28.9 billionyen, up 28.4% from the same period in the prior fiscal year. The record profit was due in part to lease revenues from newly-acquired subsidiaries outside Japan.

MUL uses a notable amount of short-term borrowings, which causes a mismatch with the short-term maturity of its assets. However, MUL's liquidity risk is mitigated in two ways of practice: careful asset liability management and the financial supports from a number of banks, especially its affiliated shareholder, BTMU.

In accordance with its business plan, MUL has increased its emphasis on Thailand through its subsidiary, BMUL. BMUL has a long track record as a machinery and equipment leasing company in Thailand. BMUL was established in 1991, as a cooperative effort with Bangkok Bank PLC (BBL) in Thailand. At present, BMUL's major shareholder is MUL. MUL owns 44% of BMUL while BBL and its affiliated companies together hold 34%.

BMUL has two major business segments: machinery and equipment leasing, and automobile maintenance leasing. MUL has shown its strong commitment to BMUL by providing business and financial support, including know-how covering operating procedures and risk management practices, plus new innovative products. The debt guarantee, including a guarantee for the debentures, is one example of the kind of financial support BMUL receives as MUL's strategic subsidiary. The strong support BMUL receives from its parent company is expected to continue for the foreseeable future. This support matches the parent company's focus on its overseas businesses, especially in Asia.

Bangkok Mitsubishi UFJ Lease Co., Ltd. (BMUL)

Issue Rating:

BMUL163A: Bt1,000 million guaranteed debentures due 2016 AA+

Rating Outlook: Stable