RAM Ratings reaffirms Toyota Capital Malaysia's debt ratings, maintains negative outlook

Published on 30 September 2011
RAM Ratings has reaffirmed the AAA(s)/P1(s) ratings of Toyota Capital Malaysia Sdn Bhd’s (“Toyota Capital” or “the Company”) RM1 billion Islamic Commercial Papers/Medium-Term Notes (“CP/MTN”) Programme (2008/2015). At the same time, the AAA(s) ratings of Toyota Capital’s RM1.2 billion MTN Programme (2008/2018) and the P1(s) rating of the Company’s RM600 million CP Programme (2004/2011) have been reaffirmed. All the long-term ratings have a negative outlook.

The enhanced ratings of Toyota Capital’s MTN and CP Programmes reflect the credit strength of the 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”). RAM Ratings notes that Toyota Netherlands has a credit-support agreement with Toyota Financial Services; in turn, Toyota Financial Services has a similar contract with Toyota Motor Corporation of Japan (“Toyota Motor” or “the Group”). Hence, the ultimate support from Toyota Motor enhances the credit profiles of these conventional debt facilities beyond Toyota Capital’s stand-alone credit strength.
Similarly, the ratings of the Islamic CP/MTN Programme are underpinned by a Purchase Undertaking from Toyota Capital, which is in turn backed by the irrevocable and unconditional guarantee extended by Toyota Netherlands, with the ultimate credit support stemming from Toyota Motor.

Toyota Motor’s strong business profile is underscored by its position as one of the world’s largest vehicle manufacturers. The negative outlook reflects the Group’s still-vulnerable earnings prospects, which could be weakened further if recovery efforts were to slow down on the recent earthquake- and tsunami-driven devastation in Japan. The strong yen also exerts significant pressure on Toyota Motor’s earnings given its sizeable output from Japan. Furthermore, persistently high unemployment rates and still-uncertain economic outlook for key markets may affect the Group’s sales. On the other hand, these factors are moderated by the Group’s strong balance sheet. Should Toyota Motor be able to exhibit sustainable improvements in its earnings in the next few quarters, underpinned by its sturdy global positioning, the outlook on Toyota Capital’s long-term ratings could be reverted to stable. Otherwise, there may be downward pressure on the ratings of the debt instruments.

Toyota Capital, meanwhile, is a financier for primarily Toyota vehicles in Malaysia, and is ultimately owned by Toyota Motor; its goal is to complement and support the sale of Toyota vehicles in this country. The Company enjoys strong support and financial flexibility from its ultimate shareholder, Toyota Motor. Notably, Toyota Capital’s asset quality has remained sturdy, with a gross impaired-loan ratio of 0.6% as at end-March 2011. In FY Mar 2011, the Company achieved a record operating profit of RM38.1 million (FY Mar 2010: RM17.0 million), thanks to its more favourable financing business.

Media contact
Gladys Chua
(603) 7628 1049
gladys@ram.com.my