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RAM Ratings reaffirms Toyota Capital’s AAA(s)/P1(s) guaranteed debt facilities

Published on 19 Nov 2021.

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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 (Toyota Financial Services). Toyota Netherlands has a credit support agreement with Toyota Financial Services, which in turn has a similar contract with Toyota Motor Corporation (TMC or the Group). 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. The Group showed strong operational resilience and flexibility when adapting to supply chain disruptions during the COVID-19 crisis, enabling it to stay ahead of its global peers. The Group’s consolidated vehicle sales dipped slightly by 5% in FY Mar 2021 (global auto sales: -15%). TMC’s financial standing also stayed robust, with a large net cash position of JPY1.7 trillion and low gearing ratio of 0.17 times (excluding borrowings held under the financial services division) as at end-March 2021.

Ultimately owned by TMC, Toyota Capital is expected to continue to derive strong financial flexibility from the Group, afforded by liquidity lines 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.

Toyota Capital’s asset quality deteriorated amid challenging operating conditions and disruptions from the various iterations of the Movement Control Order, which impacted its borrowers. The Company’s gross impaired loans (GILs) surged 75% in the 15-month period as at end-June 2021 to RM84.8 million (end-March 2020: RM48.5 million). The GIL ratio, however, only declined to 1.4% (end-March 2020: 1.0%) due to strong receivables growth. Majority of the expansion stemmed from a new financing product with a step-up repayment feature. The credit quality of these newly disbursed loans remains to be seen, given the lack of seasoning. While the economy gradually reopens, we believe that the lingering impact of the pandemic may have some downward pressure on the Company’s asset quality.

Although not regulated by BNM, Toyota Capital granted its borrowers an automatic six-month moratorium on loan repayments from April to September 2020. As a result of the moratorium, Toyota Capital had incurred a modification loss of RM105.7 mil, which led to an adjusted pre-tax loss of RM3.6 mil in FY Mar 2021 (adjusted for changes in the fair value of cross-currency interest swaps). In 1Q FY Mar 2022, adjusted pre-tax profit increased to RM37.2 mil (1Q FY Mar 2021: RM24.7 mil, excluding modification loss). The healthier income level, however, is expected to be tempered by higher provisions as delinquencies and impairments are likely to creep up.

Toyota Capital’s adjusted net gearing ratio of 11.2 times as at end-June 2021 was high as it took on more borrowings amid a growing receivables base. The indicator is anticipated to remain elevated in the near term.

 

Analytical contact
Loh Kit Yoong
(603) 3385 2493
kityoong@ram.com.my

Wong Yin Ching, CFA
(603) 3385 2555
yinching@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 2021 by RAM Rating Services Berhad



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