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RAM Ratings assigns AAA(s)/Stable rating to Toyota Capital’s proposed guaranteed debt facility
Published on 02 Dec 2024.
RAM Ratings has assigned a AAA(s)/Stable rating to Toyota Capital Malaysia Sdn Bhd’s (Toyota Capital or the Company) proposed RM2.5 billion Conventional and Islamic Medium-Term Notes (MTN) Programme. Concurrently, the AAA(s)/Stable rating of the Company’s RM2.5 billion Conventional and Islamic MTN Programme (2016/2031) has been affirmed.
The ratings reflect the strength of the irrevocable and unconditional guarantees on the debt facilities extended by Toyota Motor Finance (Netherlands) BV (Toyota Netherlands), a wholly 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 a global automotive manufacturing giant, TMC boasts a solid business profile, with diversified geographical operations and a robust financial position. Support from TMC enhances the credit standing of Toyota Capital’s debt facilities beyond the Company’s standalone credit strength.
Toyota Capital plays a strategic role as the captive financier for TMC in Malaysia and financial support is expected to be forthcoming if required. We expect Toyota Capital’s asset quality to remain sound despite its gross impaired financing (GIF) ratio creeping up to 1.0% as at end-March 2024 (end-March 2023: 0.7%). The slippage mainly stemmed from inflationary pressures, seasonal factors and financially overcommitted borrowers of buy now pay later schemes. The Company has since intensified collection efforts on early delinquents and tightened its underwriting. Its GIF coverage of 108.2% on the same date (end-March 2023: 130.0%) is expected to provide a sufficient buffer against potential credit deterioration.
The Company’s credit profile is weighed down by its gearing and profitability which is weaker compared to peers. In FY Mar 2024, the Company’s adjusted pre-tax profit declined 30% to RM96.2 mil and its adjusted return on assets narrowed to 1.0% from 1.8% in the previous fiscal year. The deterioration in performance was mainly attributable to heftier provisions, larger operating expenses and a thinner net interest margin given higher funding costs. As for its balance sheet, Toyota Capital’s adjusted net gearing ratio of 13.4 times as at end-March 2024 stood among the highest in RAM’s portfolio of rated hire purchase and leasing players. The Company’s debt burden will remain heavy as it takes on more borrowings to fund business expansion. That said, Toyota Capital will continue to derive substantial financial flexibility from the Group by way of liquidity lines and guarantees on bonds and sukuk.
Analytical contacts
Jeremy Noel Paul
(603) 3385 2556
jeremynp@ram.com.my
Sophia Lee
(603) 3385 2619
sophia@ram.com.my
Media contact
Sakinah Arifin
(603) 3385 2500
sakinah@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
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