Toyota’s $1-billion investment in Grab credit positive for both – Moody's

MANILA, Philippines — The $1-billion investment of automotive giant Toyota Motor Corp. in ride-hailing service provider Grab Holdings Inc. is credit positive for both firms, Moody’s Investors Service said

The debt watcher said the deal would enhance Toyota’s foothold and capability in ride-hailing services, a fast-growing business that could alter automakers’ traditional business models, while Grab is seen benefitting from Toyota’s technological capability.

“The collaboration complements Toyota’s existing alliances with global ride-hailing providers, including Uber Technologies Inc. and JapanTaxi Co. Ltd., an app-based provider in Japan,” said Motoki Yanase, vice president and senior credit officer for the Corporate Finance Group of Moody’s Japan.

“We expect Toyota to benefit from its growing presence in this business because new car sales in the region could fall amid changing consumer preferences and increasing acceptance of the app-enabled sharing economy. We estimate that Toyota has more than a 25 percent market share and a leading position in Southeast Asia, making it an important market for Toyota,” Yanase added.

For Toyota, Moody’s said the $1 billion investment is small relative to its annual cash flow from operations for the automotive business, which is expected to exceed 2.5 trillion yen (about $23 billion) for fiscal 2018, which ends in March 2019.

“We also expect the auto segment’s cash to exceed 2.4 trillion yen (about $22 billion) for the period, limiting the investment’s effect on Toyota’s key credit metrics,” it said.

Moody’s said Toyota’s larger size relative to some of its global competitors gives the company capacity to invest in new businesses and research and development, including connectivity, auto-drive, mobility as a service and electrification.

However, returns on investments in new areas are uncertain amid disruptive technological changes, it added.

“We expect Toyota to focus on its cost efficiency to accommodate the new investments. Improving cost efficiency is important as Toyota struggles to improve its automotive segment’s margin. Weak profitability in North America is hurting Toyota’s auto-segment margin largely because of lower demand for passenger cars relative to sport utility vehicles,” Moody’s said.

Toyota first invested an unspecified amount in Grab in 2017 through its trading company, Toyota Tsusho Corp.

According to Moody’s, other Japanese companies are also investing in ride-hailing service providers such as Honda Motor Co. Ltd., which invested an undisclosed amount in Grab in December 2016 for motorcycle-sharing services in Southeast Asia, and SoftBank Group Corp., which has invested in Uber, Grab, Chinese ride-hailing service provider Didi Chuxing and India’s ride-hailing company Ola Cabs.