Published on 10 Jan 2020.
RAM Ratings has assigned AA2/Stable and P1 ratings to the respective MTN and CP issued under ORIX Credit Malaysia Sdn Bhd’s (ORIX Credit or the Company) proposed up to RM1.5 bil MTN Programme and proposed up to RM500 mil CP Programme. The Programmes have a combined limit of RM1.5 bil. The ratings consider the expectation of ready parental support from ORIX Corporation (ORIX Corp), ORIX Credit’s ultimate holding company. In addition to governance oversight and technical expertise, ORIX Corp has demonstrated a steady track record of financial support for ORIX Credit through direct credit lines and guarantees on almost all the latter’s outstanding debts.
ORIX Credit is the largest profit contributor to ORIX Leasing Malaysia Berhad (the Group), the holding company for ORIX Corp’s operations in Malaysia. The Company is the hire-purchase (HP) arm of the Group, providing conventional and Islamic HP facilities to a customer base primarily comprising SMEs. Despite its small stature within the broader financial services industry, ORIX Credit is one of the leading players in the domestic industrial HP arena, with RM2.4 bil of receivables as at end-June 2019. Drawing from the Group’s experience which spans over four decades, the Company’s in-depth insight and knowledge of the local HP market gives it an edge, as does its close rapport with suppliers and clients.
In the last four years, ORIX Credit’s receivables have stayed relatively flat amid weaker demand for financing and more prudent underwriting. In FY Mar 2019, the Company’s gross receivables expanded 5% to RM2.4 bil. Its asset quality indicators have stayed healthy despite challenging economic conditions, although there has been an increase in newly classified impaired financing. As at end-June 2019, the Company’s gross impaired financing (GIF) ratio had edged up to 1.1% (end-March 2019: 0.8%) following the impairment of two accounts in the agriculture sector, on which provisions have mostly been made. ORIX Credit recorded a manageable credit cost ratio of 0.6% in FY Mar 2019, after several years of reserve releases. Although the challenging operating landscape could give rise to additional delinquencies, the Company’s diversified lending portfolio moderates risks to some extent.
ORIX Credit’s leverage is moderate, with an improved gearing ratio of 3.3 times as at end-June 2019 (end-March 2018: 3.7 times) backed by a larger equity base from profit accretion. As a non-deposit-taking entity, the Company relies on wholesale borrowings to fund its operations. While this exposes it to refinancing risk, cash balances and unutilised credit lines provided a sufficient coverage of 0.8 times the Company’s short-term bank borrowings as at end-June 2019. ORIX Credit’s debt maturities are also well spread out. As at end-June 2019, 72% of its borrowings were long-term facilities, comfortably supporting a receivables maturity profile where 53% have remaining tenures exceeding a year.
Ann Kimberly Lee
(603) 3385 2533
(603) 3385 2577
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Ratings on Orix Credit Malaysia Sdn Bhd