(The following statement was released by the rating agency)
TOKYO (Standard & Poor's) Aug. 29, 2003--Standard & Poor's Ratings Services today assigned its 'A-' long-term credit rating to Toyota Tsusho Corp based on the company's unique business position as a trading arm for the Toyota Motor group, resulting in stable earnings, good asset quality, and a conservative financial profile for a general trading company. The outlook on the rating is stable.
Toyota Tsusho engages primarily in trading activities that support Toyota Motor Corp. (AAA/Negative/A-1+) and its group companies.
As 80% of Toyota Tsusho's revenues come from its core, auto-related businesses, its operating performance has been very stable, albeit with relatively low profit margins. In addition, Toyota Tsusho has benefited from the strong production and sales growth of Toyota Motor, which has achieved record profitability in recent years.
"Toyota Tsusho is expected to maintain its strong capitalization ratios, stable earnings performance, and good asset quality," said Standard & Poor's credit analyst Daisuke Fukutomi.
As its primary business counterparts are Toyota Motor, Denso Corp. (AA+/Stable/A-1+), and other Toyota group companies, whose credit quality is generally strong, Toyota Tsusho's asset quality is good. Business investments are focused on auto-related activities, and investment exposures are small compared with major general trading companies in Japan.
Write-offs of bad receivables, and valuation losses on real estate and marketable securities have remained manageable over the past few years.
Toyota Tsusho has announced that it will invest an additional JPY5 billion in equity in ailing trading company Tomen Corp. (SDpi/--/--) by September 2003, raising its ownership to about 20%, making the company the largest shareholder in Tomen.
While Toyota Tsusho's financial exposure to Tomen is currently relatively small, Standard & Poor's remains concerned that further financial support will be necessary if Tomen's current restructuring efforts are not successful.
With a track record of stable profitability, relative small asset quality problems, and a strong equity buffer compared with other trading companies in Japan, Toyota Tsusho's financial profile is conservative.
The company's earnings performance, as measured by EBITDA interest coverage of 7.6x and return on average operating assets of 5.3% at fiscal year-end March 2003, is one of the strongest among Japan's general trading companies.