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RAM Ratings reaffirms Toyota Capital’s AAA(s)/P1(s) issue ratings

Published on 23 Nov 2020.

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RAM Ratings has reaffirmed the AAA(s)/Stable/P1(s) ratings of Toyota Capital Malaysia Sdn Bhd’s (Toyota Capital or the Company) RM2.5 billion Conventional and Islamic CP/MTN Programme. The enhanced ratings of the Programme reflect the credit strength of an irrevocable and unconditional guarantee extended by Toyota Motor Finance (Netherlands) BV (Toyota Netherlands), a fully owned subsidiary of Toyota Financial Services Corporation (TFS). Toyota Netherlands has a credit-support agreement with TFS, which in turn has a similar contract with Toyota Motor Corporation (TMC or the Group). As such, ultimate support from TMC enhances the credit profiles of the debt facilities beyond Toyota Capital’s stand-alone credit strength. 

As one of the top two global automotive manufacturing giants, TMC boasts a solid business profile, with diversified geographical operations and robust financial metrics. These strengths are moderated by the competitive global auto industry, the Group’s susceptibility to currency fluctuations and potential technological disruptions, including rapid advancements in autonomous and clean vehicles. Excluding debts held under TMC’s financial services division, the Group retained its strong net-cash position, with a low gearing ratio of 0.10 times as at end-March 2020. On a similar basis, its funds from operations debt coverage was a sturdy 1.43 times in FY Mar 2020.

Ultimately owned by TMC, the Company is expected to continue to derive strong financial flexibility from the Group, afforded by loans and guarantees on bonds and sukuk. Toyota Capital is a captive financier for Toyota vehicles in Malaysia, providing leasing and hire-purchase financing in support of Toyota vehicle sales.

Although not regulated by BNM, Toyota Capital had offered its borrowers a six-month moratorium on loan repayments, which ended on 30 September 2020. While the Company’s gross impaired financing (GIF) ratio was a low 0.7% as at end-June 2020 (end-June 2019: 1.1%), asset quality pressure is expected to persist given its relatively large exposure to lower-income borrowers who are typically more susceptible to adverse changes in economic conditions. The Company’s GIF coverage ratio stood at a healthy 188% as at end-June 2020.

As a result of the moratorium, Toyota Capital had incurred a modification loss which led to an adjusted pre-tax loss of RM80 mil (adjusted for changes in the fair value of cross-currency interest swaps) in 1Q FY Mar 2021 (1Q FY Mar 2020: profit of RM13 mil). Excluding the modification loss, the Company’s adjusted pre-tax profit would have been RM28 mil, with its annualised return on asset coming in at 2.1%. Toyota Capital’s adjusted net gearing ratio of 11.4 times as at end-June 2020 was rather high as it took on more borrowings owing to a growing receivables base. The indicator is anticipated to remain elevated in the near term.

 

Analytical contact
Hafiz Abdul Aziz
(603) 3385 2534
hafiz@ram.com.my

Media contact
Padthma Subbiah
(603) 3385 2577
padthma@ram.com.my

 

The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.

RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.

Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.

Published by RAM Rating Services Berhad
© Copyright 2020 by RAM Rating Services Berhad



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