Japan Leasing Corporation History

Company History:

The Japan Leasing Corporation is one of the largest commercial leasing companies in Japan. The company is owned by a diverse combination of Japan's largest companies. This owners' club, which consists of about 80 corporations, includes Ricoh, NEC, Hitachi, Komatsu, Toshiba, Mitsubishi, Marubeni, and the Long Term Credit Bank of Japan, with whom it has especially strong ties.

The company was established by Kiyoshi Ichimura, then head of the Ricoh Company, a manufacturer of automated office equipment and electronic consumer goods. Ichimura founded the company because he saw a potential in Japan for leasing operations similar to those in the United States. He noted that American leasing firms provided small- and medium-sized companies with greater flexibility by allowing them to conserve capital while outfitting offices and factories. Rather than spending millions of dollars at a time purchasing equipment, these companies could merely rent the equipment from a leasing company. In the 1960s Japan was entering a period of very strong export-led economic growth. Even small companies with very little capital, but with the right product and proper marketing, were capable of tremendous growth. The demand for leased property was clearly increasing.

Thus, Ichimura founded the Japan Lease International Corporation on August 1, 1963. Backed by numerous banks, general trading companies (sogoshosya), insurance companies, and manufacturers, the company, was initially capitalized at ¥1 billion ($4.7 million). The company secured financing from banks to purchase equipment; later the door was opened to such direct financing measures as CP issue and lease receivables securitization. In 1964 the company began leasing office machines, and the following year, Japan Lease International started offering maintenance leases of motor vehicle fleets. By 1966 medical equipment leases had become heavily in demand. The company created a Japan Flying Service subsidiary in 1965 to deal in leases of small aircraft. The following year Japan Lease International established the Japan LP Gas Meter Lease Company, a subsidiary dedicated to the lease of household liquid gas fuel meters to consumers.

This period of strong growth in the Japanese economy was characterized by intensive utilization of available capital and feverish acceleration of technological innovation. A given model of equipment was often run into the ground or became obsolete after little more than a year. The demand for leased equipment contributed greatly to Japan Lease International's volume, which by 1966 had exceeded ¥10 billion ($47 million) annually.

The success of the company inspired many imitators, mostly as leasing subsidiaries of banks. Between 1967 and 1969 several companies entered the market as competitors to Japan Lease International. Concerned more with the profitability of their growing industry than individual market share, these companies banded together in 1969 to form the Japan Leasing Association, an organization dedicated to the preservation of favorable regulations for the leasing industry. Ichimura was elected the first chairman of the new group. Partly due to good lobbying efforts, the group won new regulations for an institutional cross-border lease system from the Ministry of International Trade and Industry, Japan's government industry board. This enabled Japan Lease International to engage in larger scale projects, including leasing of aircraft. The expansion of business required several increases in the company's capitalization. Three increases were completed by 1971, raising the company's capitalization to ¥2.5 billion ($11.8 million).

Japan Lease Services, another subsidiary, was created in 1969 to handle maintenance services for the company's fleet of leased automobiles. In 1970 the company established Nippon International Container Services to handle institutional leasing of shipping containers. Japan Lease International carried its expansion to foreign markets in 1971, opening a subsidiary office in the United States. Additional offices were established in Hong Kong in 1972, Singapore in 1973, and Brazil in 1975. The company's clients in these cities were often off-shore affiliates of Japanese companies that were located in these countries. Japan Lease International therefore followed some its most profitable clients to promising new foreign markets.

The energy crisis of 1973 caused serious hardship in oil-dependent Japan. Because of rising uncertainty in industrial markets, few businesses were willing to make further investments in new plant and equipment. As a result, demand even for short-term equipment leases declined sharply. But even under these circumstances, Japan Lease International registered only small declines in its rate of growth. The lapse in demand was only temporary, and did not prevent the company from expanding into a wider variety of equipment leases.

In order to better handle the increasingly diverse nature of its leasing business, the company formed a separate subsidiary, the Japan Machinery Leasing and Sales Company, in 1974. This new unit specialized in large capital leases and supervised the sale of equipment after it had been fully depreciated or was no longer marketable for lease. To avoid disputes with tax authorities about the economic substance of the lease, buy-out options, common on American and many European leasing contracts, are rarely found on Japanese lease contracts. Instead of offering leased capital on an up-front rent-to-own basis, the company provides re-lease options to lessees at reduced rental fees at the conclusion of a lease. In that way, Japan Lease International's mainstay business has been the "finance" lease.

In 1976 the company branched into money lending. Although it was not a bank, it now was functioning in many of the same capital markets. By 1977 the volume of Japan Lease International's contracts exceeded ¥100 billion ($474 million), ten times its volume only ten years earlier.

Japan Lease International changed its English name in 1978 to Japan Leasing Corporation, corresponding to the change of the Japanese name in 1967. Also that year, the company began leasing a larger range of aircraft, including wide body DC-9s and B-747s. Japan Leasing also began to branch into grocery and fast food store leases, providing land and completely outfitted facilities for a franchisee or owner. The company also provided lease arrangements for a number of hotels. By 1980 Japan Leasing's volume exceeded ¥200 billion ($948 million), representing a doubling rate of only three years. That year Japan Leasing established an agency agreement with the China National Machinery Import and Export Corporation, opening the door for equipment leases to firms operating in the People's Republic of China.

A second oil shock in 1979 and 1980 caused further slowdowns in capital spending. Like the 1973 oil shock, this crisis depressed Japan Leasing's sales growth only temporarily, producing a pent-up demand for leases when the crisis had passed. Still, by 1982, competition had grown substantially. That year company President Tetsuo Nishio was forced to rein in costs by initiating a company-wide consolidation program. This effort continued for several years as Japan Leasing continued to lose new business to competitors.

Japan Leasing began making yen-denominated cross-border leasing agreements in 1981. Yen-based cross-border contracts offered lessees lower, more stable interest provisions than other currencies. The first yen leases went for aircraft to China Airlines, Japan Air Lines, Air France, and Air New Zealand. In 1982 Japan Leasing concluded another yen lease agreement with a ¥57 billion contract to supply 555 rail cars to the Belgian National Railways Company. Treated as a product, yen leases contributed greatly to the company's growth. In a further effort to win new sales, Nishio ordered a strengthening of Japan Leasing's investigation procedures. This was intended to improve the company's reaction time and ensure that customers' needs were being met.

Japan Leasing branched into home loans in February of 1982, broadening its competition with banks. By this time, auto leasing became an especially important business to Japan Leasing. As late as 1983 the company maintained leases for only 25,000 automobiles, many of which came with maintenance contracts. By 1989 that number had doubled, causing a need for the creation of another subsidiary dedicated to auto leases. This company, Japan Leasing Auto Corporation, was established in April of 1988.

Japan Leasing established several other subsidiaries during the 1980s, including a United Kingdom office in 1983, a Shanghai-based joint venture called Pacific Leasing, and JLA Credit in the United States in 1985. In 1987 opened JL Tourist, a travel agency. The rapid expansion of business helped to bring sales up to ¥400 billion in 1990. The company's rate of growth, still in double digits, had begun to fall.

Japan Leasing launched several commodities investment funds in 1991 and established new financing arms in the United States and United Kingdom in 1990. In August of that year Japan Leasing helped set up the Fieldstone Private Capital Group, a company specializing in complex structured leasing transactions--mostly consisting of aircraft--and privatizations in the public utilities sector. The company had become increasingly nervous about the aircraft leasing business, particularly as recession-weary markets in Europe and North America threatened to result in overcapacity, a jet glut, and potentially millions of dollars of non-performing assets.

Tetsuo Nishio, now chairman of Japan Leasing, called 1990 a "difficult" year, as the company was only able to register 19.1 percent sales growth. The following year, growth had fallen into single digits, prompting Nishio to start up his consolidation program again. The primary features of this program were concentrated on better utilization of computer systems to improve sales performance. The company announced no lay-offs. Much of the slower sales growth could be attributed to a worldwide recession that began late in 1989. The company mused about its lowered rates of growth by citing the common 30-year cycle of modern corporations. In an executive speech, a director of Japan Leasing suggested that few corporations are able to maintain sales growth indefinitely and are bound mainly by the size of the world market. Under the best conditions, companies exhaust their capacity for double-digit sales growth after 30 years.

This theory may not apply to Japan Leasing. The company's market, which now is international in scope, is populated with many competitors. Japan Leasing has substantial experience in providing machinery and financing for numerous fields, including petroleum and chemical production, mining, forestry, and tourism. As a supplier and possible business partner, Japan Leasing serves an important role in Japan's export-oriented economy. The company facilitates export sales by offering easy terms to foreign customers. Without the assistance of Japan Leasing, manufacturers such as Hino Motors, Komatsu, and Mitsubishi might have had some difficulty making their products affordable in many developing countries.

Principal Subsidiaries: Japan Leasing Auto Corporation; Japan LP Gas Meter Lease Co., Ltd.; Japan Machinery Leasing and Sales Co., Ltd.; Ginza International Hotel Co., Ltd.; Choshu Kanko Kaihatsu Co., Ltd.; Communication Science Corporation; CJK Co., Ltd.; J.L. Rec Corporation; Nippon Mitek Co., Ltd.; J.L. Tourist Corporation; Singapore Leasing International (Pte) Ltd.; Japan Leasing (Hong Kong) Limited; Japan Leasing (USA), Inc.; Japan Leasing do Brasil S.A.; P.T. Central Sari Metropolitan Leasing Corp. (Indonesia); Japan Leasing (UK) Limited; Aviation Capital Enterprises Ltd (UK); Nova Northwest Capital, Inc. (USA); JLA Credit Corporation (USA); Fieldstone Private Capital Group, L.P. (USA); Fieldstone Private Capital Group Ltd. (UK); Fieldstone Private Capital Group (Asia) Ltd. (Hong Kong); Pacific Leasing Corporation (China); ILC Group Ltd. (UK); ILC Finance Ltd. (UK); ILC France S.A.; UNIMET Computer Marketing GmbH. (Germany); ILC Finanziaria SpA./ILC Italia SpA. (Italy).

Further Reading:

• "The Leasing Profession: On the Way to a New Structure" and "Leasing Market Reaching Saturation," speeches by Osamu Nagano, Managing Director, Company Documents.
• "Who is Saying What in the U.S. Arranger Market?" Asset Finance & Leasing Digest, August 1992, pp. 7-11.
• "Fieldstone Private Capital Group, Ltd.," Prospectus.
• "Japan's Expanding Cross-Border Leasing Market," Aircraft Leasing, November 1989, pp. 25-30.
• Annual Reports, Tokyo: Japan Leasing Corporation, 1981 1983, 1986, 1990, 1991, 1992.

Source: International Directory of Company Histories, Vol. 8. St. James Press, 1994.

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