RAM Ratings has upgraded the long-term ratings of ORIX Leasing Malaysia Berhad's (ORIX Leasing or the Company) CP/MTN Programme of up to RM500 million and MTN Programme of up to RM500 million, from AA3/Positive to AA2/Stable. Concurrently, we have reaffirmed the P1 short-term rating of the CP/MTN Programme.
The upgrade is premised on the stronger credit profile of Japan-based ORIX Corporation (ORIX Corp or the Group), which wholly owns ORIX Leasing. The Company's ratings are closely related to ORIX Corp's credit fundamentals given its strategic importance to its parent. We expect a high likelihood of financial support from ORIX Corp in times of need. In this respect, ORIX Corp's ability to support the Company has strengthened given its healthier financial metrics. Notably, the Group has demonstrated further improvement in its asset quality and leverage levels beyond our expectations, while also trimming its exposure to real estate, which used to be a main source of impairment.
ORIX Leasing's healthy asset-quality indicators continue to highlight its prudent credit culture and stringent monitoring procedures. Its gross impaired-financing (GIF) ratio had eased further to 1.2% as at end-June 2016 while its GIF coverage ratio came up to a robust 161.4%. Despite the tougher economic environment, we believe that the Company's asset quality will remain intact, underscored by its tighter underwriting standards and intensified collection efforts.
Given the weak business sentiment as well as ORIX Leasing's emphasis on credit quality and margin preservation over growth, its gross receivables shrank 12% in FY Mar 2016, followed by a further 5% in 1Q FY Mar 2017. As such, we expect a more subdued earnings outlook over the next 12 months. In line with the reduction in receivables, ORIX Leasing's gearing ratio had eased to 1.7 times as at end-June 2016 (end-March 2015: 2.4 times).
Analytical contact Media contact
Liang Huey Jean Padthma Subbiah
(603) 7628 1124 (603) 7628 1162
[email protected] [email protected]
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