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Fitch Publishes 'A-' Rating for ORIX; Outlook Stable
August 15, 2014 / 6:37 AM / 3 years ago

Fitch Publishes 'A-' Rating for ORIX; Outlook Stable

(The following statement was released by the rating agency) TOKYO/HONG KONG/SINGAPORE, August 15 (Fitch) Fitch Ratings has published Japan-based ORIX Corporation's (ORIX) Long-Term Issuer Default Rating (IDR) of 'A-'. The Rating Outlook is Stable. The agency has also published the company's Short-Term IDR of 'F2'. KEY RATING DRIVERS - IDRs ORIX's IDRs reflect its modest leverage, adequate liquidity position and track record of having remained profitable over the past half century, the latter reflecting the company's adequate risk management. The ratings also factor in ORIX's opportunistic acquisition and divestment strategy, which has potential to alter its already complex business structure. Leverage has been maintained at a modest level (2.0x at end-June 2014, non-US GAAP) and ORIX's management intends to hold down leverage in the short and medium term by relying less on external funding. This and its adequate capital retention through modest dividend pay-out and sustained profitability are likely to provide ORIX with a reasonable buffer against a stressed operating environment. ORIX's credit risk mainly lies in its corporate loan portfolio, which comprises senior lending and non-recourse loans. Due to its strategic focus on the middle-risk market, its overall non-performing loans/total claims ratio of 4.6% at end-March 2014 (end-March 2009: 11.7%) remains high relative to major domestic banks, where a large proportion of loans are extended to listed companies with sound financial positions. However, such exposures account for less than 2% of ORIX's total assets. Moreover, the margins in the middle-risk business more than adequately cover the credit risk, even under a more stressed scenario. Fitch believes ORIX's liquidity position is adequate as the company's debt maturing within one year (including bank borrowings) is covered by its liquid assets and operating cash-inflow. Furthermore, ORIX has been lengthening its debt maturities over the past few years to stabilise funding. Nevertheless, reliance on wholesale funding may render ORIX more vulnerable than retail banks in the event of dislocation in financial markets. KEY RATING SENSITIVITIES - IDRs ORIX's IDRs would be affected by material changes in the company's risk appetite, business complexity, capital and leverage policy, and liquidity position. An upgrade of ORIX's IDRs is unlikely in the medium term, given Fitch believes the operating environment will only modestly improve, the company's structural complexity and opportunistic investment strategy. Furthermore, Fitch does not expect any material and sustained reduction in leverage or further strengthening of liquidity, as these would be subject to its business strategy and adjustment to changes in the operating environment. A downgrade of ORIX's IDRs would be considered if the company's risk appetite increased without a corresponding strengthening of capital buffers. This includes large-sized acquisitions that could lead to higher capital usage and/or leverage. Also, increased complexity in its business operation rendering risk control more challenging, and substantial deterioration in the company's liquidity position due to internal/external factors such as large cash usages or rapid deterioration in the funding market, could exert negative pressure on the ratings. Meanwhile, a one-notch downgrade in the Japan's sovereign rating (A+/Negative) would not immediately affect ORIX's IDRs because the company's diversified business portfolio partially insulates it from potential downturn in the domestic macroeconomic performance and it has only limited exposures to the government. Contact: Primary Analyst Miki Murakami Director +81 3 3288 2686 Fitch Ratings Japan Limited Kojimachi Crystal City East Wing 3F 4-8 Kojimachi, Chiyoda-ku, Tokyo 102-0083 Secondary Analyst Chikako Horiuchi Director +852 2263 9924 Committee Chairperson Mark Young Managing Director +65 6796 7229 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: Additional information is available at Applicable criteria, "Global Financial Institutions Rating Criteria", dated 31 January 2014, and "Finance and Leasing Companies Criteria", dated 11 December 2012, are available at Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria here Finance and Leasing Companies Criteria here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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