Wednesday, November 10, 2010

RAM Ratings reaffirms Toyota Capital M'sia RM3.2b debt notes ratings, keeps negative outlook

KUALA LUMPUR: RAM Rating Services Bhd reaffirmed the ratings of Toyota Capital Malaysia Sdn Bhd's debt notes totalling RM3.2 billion but maintained a negative outlook for the long-term ratings.

RAM Ratings said on Wednesday, Nov 10 the debt notes involved are the AAA(s)/P1(s) ratings of Toyota Capital's RM1 billion Islamic commercial papers/medium-term notes (CP/MTN) programme (2008/2015).

It also reaffirmed the AAA(s) ratings of the RM1.2 billion MTN programme (2008/2018) and RM400 million MTN programme (2005/2012) and the P1(s) rating of the company's RM600 million CP Programme (2004/2011).

Below is the statement issued by RAM Ratings

The enhanced ratings of Toyota Capital's MTN and CP programmes reflect the credit strength of the irrevocable and unconditional guarantee extended by Toyota Motor Finance (Netherlands) BV (Toyota Netherlands), a unit of Toyota Financial Services Corporation.

RAM Ratings notes that Toyota Netherlands has a credit-support agreement with Toyota Financial Services; in turn, Toyota Financial Services also has a similar contract with Toyota Motor Corporation of Japan (Toyota Motor).

'Hence, the ultimate support from Toyota Motor enhances the credit profiles of these conventional debt facilities beyond Toyota Capital's stand-alone credit strength,' it said.

Similarly, the ratings of the Islamic CP/MTN Programme are underpinned by a Purchase Undertaking from Toyota Capital, which is in turn backed by the irrevocable and unconditional guarantee extended by Toyota Netherlands, with the ultimate credit support stemming from Toyota Motor.

Toyota Motor's strong business profile is underscored by its position as the second-largest vehicle manufacturer in the world.

Nevertheless, the negative rating outlook has been maintained as we remained concerned on Toyota Motor's future sales and earnings profile amid the lethargic economic recovery and still-high unemployment rates in its key markets, as well as the adverse impact of recent global vehicle recalls and the winding down of various government incentives to push car sales.

The threats of a stronger yen, prolonged deflation in Japan and delayed entry into emerging markets would also hamper a strong rebound in Toyota's sales performance in the interim. Should Toyota Motor exhibit sustainable improvements in its sales and earnings over the next few quarters, the outlook on Toyota Capital's long-term ratings could be reverted to stable. Otherwise, there may be downward pressure on the ratings.

Toyota Capital is a captive financier for UMW Toyota Motor Sdn Bhd, partly owned by Toyota Motor; its main goal is to complement and support Toyota vehicle sales in Malaysia.

The company enjoys strong support and financial flexibility from its parent company.

Toyota Capital's asset quality has remained strong, with a gross impaired-loan ratio of 0.5% as at end-June 2010. In FY March 2010, the company achieved a higher operating profit of RM17.0 million (FY Mar 2009: RM5.0 million), thanks to a more favourable financing business.

At the same time, the company's adjusted net gearing ratio had increased from 13.5 times to 16.1 times year-on-year, which is a concern.

Moving forward, RAM Ratings expects its gearing level to increase further in view of its expanding financing business.

Nevertheless, the concern on its high gearing ratio is partly mitigated by the expected support from Toyota Motor, if needed.


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