[RAM] RAM Ratings reaffirms ratings of ORIX Leasing and ORIX Credit

RAM Ratings has reaffirmed the AA2/Stable rating of ORIX Leasing Malaysia Berhad’s (OLM or the Group) RM500 mil Medium Term Notes (MTN) Programme (2016/2031). The AA2/Stable rating of ORIX Credit Malaysia Sdn Bhd’s (OCM) RM1.5 bil MTN Programme (2021/2051) and P1 rating of its RM500 mil Commercial Papers Programme (2020/2027) have also been reaffirmed. A wholly owned subsidiary of OLM and highly integrated with the Group, OCM contributed just under 70% of the Group’s pre-tax profit in FY Mar 2021. As such, the credit profiles of OLM and OCM are closely aligned.

The reaffirmation of the ratings reflects our expectation of continued ready support from ORIX Corporation (ORIX Corp) – the ultimate parent of the two entities – in view of the Group’s strategic importance to ORIX Corp. Apart from guaranteeing almost all the Group’s bank borrowings and providing credit lines, ORIX Corp exercises strong oversight of the Group’s operations.

The ratings also give credit to OLM’s established franchise in the domestic hire purchase (HP) and leasing industry. The Group is a leading player in the domestic industrial HP and leasing sphere. With almost five decades of experience in this space, the Group’s in-depth insight into and knowledge of the Malaysian HP and leasing market gives it an edge, as does its good relationships with suppliers and clients.

OLM’s asset quality has weakened amid the challenging operating landscape, its gross impaired financing (GIF) ratio rising to 5.8% as at end-September 2021 (end-March 2020: 1.5%; end-September 2020: 4.6%). This was partly due to a shrinking financing base, OLM’s selective stance in extending relief measures to HP customers and constraints in restructuring and rescheduling term loans extended under the Group’s money lending licence. A portion of its GIF also relates to receivables under its HP and leasing portfolio for which relief has been approved but execution is pending. Excluding term loans classified as impaired but granted indulgence and accounts where the execution of restructuring and rescheduling has not yet commenced, the adjusted GIF ratio would stand at a lower 3.9%. Besides this, RM6.3 mil of GIF were reclassed to performing or fully settled post 30 September 2021 while another RM5.9 mil are pending disposal proceeds.

About 11% of the Group’s receivables were under forbearance as at end-September 2021, a lower proportion than peers’. Almost 64% of this relates to the government-led loan support scheme for bus operators that provides a 50% guarantee. We expect any lingering credit risk to be manageable owing to OLM’s prudent underwriting and stringent monitoring and collection procedures. 

Pre-tax profit fell to RM77 mil in FY Mar 2021 (FY Mar 2020: RM115 mil) on account of the Group’s weaker lending appetite and higher impairment allowances. In 1H FY Mar 2022, pre-tax profit rebounded by 32% from the previous corresponding period to RM47 mil following a reduction in impairment expenses. In the same period, OLM’s net interest margin (NIM) grew 26 bps to 5.5% (FY Mar 2020: 5.2%) as it trimmed some of its costlier fixed-rate borrowings while expanding the high-yielding term loan portfolio. As term loans increase, the Group’s NIM may see an upward bias in FY Mar 2022.

OLM boasts one of the lowest gearing levels among its RAM-rated leasing peers. As at end-September 2021, gearing eased to 1.1 times (end-March 2020: 1.3 times) in line with receivables contraction. Cash balances and unutilised credit lines afforded the Group seven times coverage of its short-term debt as at the same date.


Analytical contacts
Lee Yee Von
(603) 3385 2503
yeevon@ram.com.my

Wong Yin Ching, CFA
(603) 3385 2555
yinching@ram.com.my