Toyota on new circuits

IFR Top 250 Borrowers 2008
5 min read

Toyota Motor (TMC) has achieved staggering, consecutive record breaking net revenues of ¥23.95trn and net income of ¥1.64trn – or about US$202.86bn and US$13.93bn respectively, for the fiscal year ended March 31 2008. The figures represent a 13.8% revenue boost and an even higher 19.8% income increase from the previous fiscal year.

This helps explain why the auto manufacturing side of the business is hardly borrowing; all Toyota related subsidiaries’ aggregate outstanding debt amounts to about US$68.6bn, of which only around US$2.7bn is owed by the industrial firm. The largest borrower, Toyota Motor Credit Corp (TMCC), has taken on around US$40.6bn of outstanding debt.

The group companies between 1 May 2007 and 30 April 2008, issued close to US$19.4bn of debt, including the first ever RMBS deal, according to data by Thomson Reuters.

In June 2007, Toyota Finance Corp (TFC), the Japanese subsidiary, ventured into the RMBS sector – traditionally the Japanese mega-banks’ stronghold – securitising a ¥45.3bn pool of residential mortgage loan receivables.

The deal was split into a ¥27bn floating class A, a ¥8bn class B1 and ¥10.3bn class B2 both paying fixed dividends. The legal final maturity date for the triple-A rated classes, solely underwritten by Nikko Citi, is May 12 2050. The transaction has 9.0% over-collateralisation.

The maiden RMBS attracted broad investor interest as it paid a higher spread than domestic straight bonds. Japanese investors in securitisation had less leverage than their global peers and therefore suffered a lesser hit during the credit turmoil last year. But even there the diversification offered by the loan assets proved popular. The loan receivables came from the Aichi prefecture (about 40%) – where the group headquarters are located. By contrast, most mega-banks deals concentrate on the Tokyo or Osaka areas.

Not long after this, in Mid December, came a second, ¥46.5bn RMBS series. Again managed by Nikko Citi, it consisted of a ¥25.5bn floating class A while the fixed parts were a ¥8.5bn class B1 and ¥12.5bn class B2 with over-collateralisation of 7.4%.

In terms of domestic debt, TFC in five-years is about 20bp over JGBs, as are the utility names which are rated lower, making it one of the “flight to quality” magnets during the recent volatile periods. Although on occasions it widened in response to market, generally the paper has tightened in the past six months, said one domestic trader.

It has been a calmer year for TMCC, the flagship financial subsidiary. “There is now an increased tendency to raise funds through private placements – not always to Japanese investors but also to US domestic investors – due to the lately volatile markets,” said an official at Toyota Financial Services.

“As for our Uridashi issues [offered to Japanese retail investors], they have been dramatically increasing, while for the past fiscal year, euro public market offerings decreased.”

There have also been rumours that TMCC explored the possibility of a Samurai bond issuance; the group registered a shelf programme for up to ¥400bn, valid for two years at the end of August 2007. A non-deal roadshow followed, arranged by Toyota Financial Services Securities, Mitsubishi UFJ and UBS.

“Toyota is a name everybody knows and, with its Triple A rating, if a subsidiary decides to issue a Samurai it can certainly grab some size,” a banker said at the time. “But if it issues a Samurai spread it could end up higher than Toyota’s domestic papers. If that happens it will not only pay up more but could also distort the domestic papers’ spread.”

Elsewhere, UMW Toyota Capital, a Malaysian auto leasing joint-venture – where TMC owns a 70% stake – is preparing an inaugural sukuk. The company has set up an Islamic programme for up to M$1bn (US$307.8m), with a tenor of up to seven years, through CIMB and Bank of Tokyo-Mitsubishi UFJ. Both CP and MTN issues are expected to launch as early as June.

In accordance with its Malaysian leasing operations, TMC is believed to be growing its Sharia-compliant loan assets – naturally directing it towards fundraising opportunities in the Islamic world. The deal is a potential bellwether for other prospective Japanese borrowers, being more than double the size of the first public sukuk from Japanese firm, according to bankers familiar with Islamic structured products.