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02 Dec 2010
Tokyo, December 02, 2010 -- Moody's Japan K.K. has affirmed ORIX Corporation's
A3 senior unsecured, senior unsecured medium-term note (MTN),
and long-term issuer ratings.
The ratings outlook remains negative reflecting ongoing challenges the
company faces as a result of weak profitability in three key divisions
- corporate financial services, real estate and investment
banking. This is due primarily to the large exposures to the real
Moody's notes that the company's exposure to real estate has
been reducing, provisions/impairment losses most likely have peaked
and that the property sector as a whole appears to be stabilizing.
Nevertheless ORIX's exposure to this sector remains material and
-- in the context of continued weakness in the Japanese economy --
a primary area of concern to the rating.
On the other hand, the ratings affirmation reflects Moody's view
that ORIX has remained profitable throughout the difficulties of the last
two years, reduced leverage and has improved its wholesale funding
The ability to remain profitable -- even while recording large losses
due to its real estate exposures -- reflects the diversified nature
of the company's operations with sectors such as retail and maintenance
leasing remaining profitable throughout the period.
Furthermore, in response to the weak nature of the global economy
and uncertainty in the financial markets, ORIX has strengthened
its capital cushion relative its risk profile.
This has been achieved through the accumulation of profits by internal
retention, and as it reduced -- mainly non-recourse
loans -- some of its financing exposures to the real estate sector.
Moreover, the funding environment has improved, as evidenced
by its successful periodic issuance of domestic unsecured straight bonds
from late December 2009 and an issuance of global bonds in April 2010.
However, as indicated, Moody's notes ORIX's financial
situation is mixed.
For example, while its debt/equity ratio has improved, its
profitability indicators have not recovered sufficiently since February
2009 when the ratings outlook was changed to negative from stable.
The outlook could return to stable if ROA exceeds 1% on a sustained
basis and without a significant increase in its debt/equity ratio,
and which would remain around 4x. In this context, Moody's
will also consider the ability of ORIX to maintain profitability and manage
risk appropriately through the cycle, as it reduces its operations
in areas such as real estate and looks to grow others.
The ratings could be downwardly pressured if bottom-line base profits
fall further, jeopardizing the company's financial soundness
and ability to absorb risks.
Such a scenario could arise from a decline in top-line revenue
or another increase in credit costs as well as impairment losses due to
its exposures to the real estate sector and related real estate finance.
Negative rating action could also occur if Moody's considers ORIX
is increasing its risk exposure as it seeks growth, without a corresponding
reduction in leverage to cushion against such increased risk. A
key challenge in this context is how the company will replace in a sustainable
manner the contributions from property in its corporate finance,
real estate and investment banking divisions.
Moody's last rating action with respect to the ORIX was taken on
February 10, 2009, when the outlook for the senior unsecured
rating, the senior unsecured MTN rating, and long-term
issuer rating was changed to negative from stable.
The principal methodology used in this rating was "Analyzing the Credit
Risks of Finance Companies: Rating Methodology" published on September
30, 2010. Other methodologies and factors that may have been
considered in the process of rating this issuer can also be found on moody's.co.jp.
ORIX Corporation, headquartered in Tokyo, was established
in 1964 as a leasing company, and focuses on providing financing
to small to medium-sized enterprises. Its consolidated total
assets were about JPY 8.6 trillion as of September 30, 2010.
Financial Institutions Group
Moody's Japan K.K.
JOURNALISTS: (03) 5408-4110
SUBSCRIBERS: (03) 5408-4100
MD - Financial Institutions
Financial Institutions Group
Moody's Japan K.K.
JOURNALISTS: (03) 5408-4110
SUBSCRIBERS: (03) 5408-4100
Moody's Japan K.K.
Moody's maintains ORIX's negative ratings outlook
Atago Green Hills Mori Tower 20fl
2-5-1 Atago, Minato-ku
No Related Data.
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