Orix Corp

TSE:8591

Earnings Call Transcript 2019-Q2

[Haruyasu Yamada, executive]

Now we would like to begin the conference. Thank you very much for coming to ORIX Corporation's Second Quarter Consolidated Financial Results for 6-Month Period ended September 30, 2018.

I'd like to introduce myself. My name is Haru from Corporate Planning, ORIX. I'd like to serve as the emcee.

I'd like to explain the handout material. There are 5 items included in your handout. There's a financial report, supplementary report, [ attachment ] report, press release and a questionnaire.

There will be a presentation from our Director Representative Executive Officer, President and CEO, Makoto Inoue, to be followed by Q&A. And we are scheduling to end this conference at 4:00.

Now Mr. Inoue will begin.

[Makoto Inoue, executive]

Good afternoon, ladies and gentlemen. My name is Inoue. Thank you all very much for your participation despite of your busy schedule. I thank you all.

So I would like to give my executive summary on the business performance for ORIX. For the first half, the net profit as compared to the prior year of JPY 166 billion, unfortunately, it had declined by 6.6% at JPY 155 billion with ROE at 11.3%.

On a full year basis, the net profit, if we were to assume the growth to be at 4%, then the progress that was made at the time of the first half is 47.6%.

In the first half, as to the private equity investment, there were no major capital gain and coupled with the fact that unfortunately IL&FS, which we have invested back in 1993 in India, unfortunately had failed. On an accumulated basis in the first half, we had to post JPY 11.5 billion worth of loss and thereby Investment and Operation segment as compared to the prior year, the profit declined by JPY 14.1 billion, 36% of decline. And Overseas Business, unfortunately, had declined by JPY 13.7 billion. So these are the attributing reasons for this decline in the profit.

Apart from these segments, the other segments in fact has been trending according -- in line with our schedule, but there has -- due to some timing issues, we have arrived at the figure which I have shared with you right at the outset. We hope to have these being amended in the second half of this year.

As to the segment assets, NXT Capital, which we have acquired with Overseas Business segment, as compared to the end of the prior year, JPY 520 billion worth of assets had been increased. In the second half, Avolon Holdings Limited, 30% of the stake will be acquired at a price of JPY 250 billion. So therefore, the new investment is trending really well.

In addition to that, on Friday last week, we had carried out at timely disclosure of TOB. That is scheduled to be implemented from this week for Daikyo, which would allow us to convert the company into a wholly owned subsidiary. I would go into further details of this Daikyo being turned to a wholly owned subsidiary, thereby integrating the business into ORIX Real Estate businesses. We hope to enjoy a positive impact as a result of synergistic effect.

So taking all these projects into account, if it was not to be unexpected mishaps, we hope to be achieving the growth of more than 4% of growth at the net profit level. Now ROE of more than 11% is to be maintained so that will be able to achieve our whole year guidance for this year.

As I have mentioned previously, for the first half as to the actual accomplishment, in August, we have acquired NXT Capital in United States by 100% and we should be able to enjoy the positive contribution that will be made from this company from the second half of this year. As to the investment amount, it is USD 860 million. And asset on a segment asset basis, JPY 260 billion on a consolidated basis. And the pretax profit will be around JPY 10 billion per annum.

NXT Capital is a leverage finance syndicator in United States that deals with medium-sized enterprises in United States and it holds the position being a #2 in the industry. So 90% of the product they in fact produce and formulate in fact are wholesale to the institutional investors and they have solid positioning as a debt-related asset management. ORIX USA, in fact, positions asset management business to be one of the growth driver. And we would continue to enhance the diversity of the business line so that we can further enhance the asset management businesses. As a matter of fact, ORIX Group's asset management business, if it was to be positioned as one of the segment of our entire entity, AUM in total arrives at JPY 44.8 trillion with pretax profit of JPY 74.4 billion.

From here down the road, one of the challenge for us is to how to efficiently manage the asset management businesses. Towards the future, we would be -- we would like to be engaging ourselves in discussion towards a future integration of this asset management businesses.

In the second half of this fiscal year, we are planning to make a major investment into an aircraft leasing company, Avolon. The number of aircraft held as well as committed aircrafts total 890 units, which makes them the third biggest player in the industry. In the first half of November, we are planning to have a closing of the deal and we are making steady preparations towards that. The investment amount is USD 2.2 billion or JPY 250 billion.

For ORIX, this is going to be one of the biggest investment equal to Robeco. And equity method profit contribution expected per year is JPY 12 billion. In addition, there will be an improvement in the credit rating of this company as well as the loans situation. And we hope that this company's liability will improve quite significantly. So on top of that, we are expecting an upside from those factors.

The equity we have is 30% in this company. It's an affiliated company, but out of the 7 directors on the board of Avolon, 2 people will be coming from ORIX and we also have a veto right for the selection of the 1 external director. And at the board meeting, we also have a veto right for major resolutions to be adopted by the company.

There will be a shareholders agreement between HNA Group China and those provisions will be reflected on the articles of incorporation of Avolon based on the Cayman law, which is the location of Avolon company. Even if there are unexpected situations, such as a change in major shareholders, we can secure all of the rights of ORIX to stay intact.

We have ORIX aviation system business. The strength of this business resides in the secondary market, whereas Avolon has their strength in the primary market such as the direct transaction with the aircraft manufacturers as well as the long-term leasing business with airline businesses. In the primary compared with the secondary market, the market size is bigger, therefore, the entry barrier is higher as well.

This Avolon company is the third biggest in the industry. Through this investment, we are hoping to secure our presence in the primary market, so that eventually in the secondary market we can secure the abundant pool of used aircraft in the future.

Expansion of value chain and expansion of asset size is something we expect. But not only that, we're also expecting that our -- the enhancement in the operating leasing business towards the Japanese shareholders. So there will be a good synergy between us.

In addition to Avolon, we also expect to expand the fee business from ORIX aircraft business from this investment.

The ratio of operating lease in all the aircraft is likely to reach 50% in 2020 -- in the 2020s. So that means that a higher speed for the growth of operating lease compared with the growth of the number of passengers or the number of aircraft. At ORIX, we are hoping to enhance our presence in the aircraft leasing market, which is expected to show tremendous growth going forward.

As I said before, the new investment amount we are expecting for the first half of this fiscal year is JPY 400 billion, including NXT Capital. In the second half, we will have an investment into Avolon JPY 250 billion and Daikyo's TOB investment is JPY 77 billion. Those are in the second half.

The market for M&A, the market is slightly overheated at the moment. However, the investment amounts for NXT Capital and Avolon is quite modest compared with the corporate values that they can bring.

ORIX has the basic policy that to all the deals we will be -- there is no change in our stance in focusing on the entry price, and I would like to add this at this point in time. The pipeline is continuing to be very rich. So we would continue to carry out a thorough analysis of the risk-return profile. And also, at the same time while we would be focusing, of course, on the new investment, but also at the same time we will continue to carry out the rebalancing if it proves to be necessary.

Other than that, ORIX Life Insurance, the policies in force had reached above 4 million as of May of this year.

Over the course of the recent 2 years, we managed to grow the number of insurance policies in force from 3 million to 4 million. The growth speed, in fact, is accelerating.

October of this year, the major product of medical insurance, Shincure, has been introduced and in addition to that, the premium has been brought down and also a new rider has been introduced.

Inclusive of mega-solar, the renewable energy power generation plant, we have established a company for operational maintenances. Total of 1,000 megawatt for solar -- of solar capacity has been ensured. And as a result of this birth of the new company, we should be able to proceed with the reduction of the cost and also fostering of the expertise internally and also at the same time, the maximization of the capacity as well.

And also, for the purpose of proceeding with this renewable energy businesses outside of Japan, we have established an office in London.

Last Friday, we have carried out a timely disclosure. The public subsidiary, Daikyo, we have decided to carry out the TOB. And thereafter, as a result of squeeze-out, we intend to acquire the company by 100%. As a result of converting Daikyo to be our wholly owned subsidiary, we are planning to delist the company in the future. In terms of the segmentation of the business of Daikyo, we will be transferring the business from Investment and Operation to Real Estate segment in the future.

The purpose of converting Daikyo to our wholly owned subsidiary is to achieve a synergistical effect as well as achieving a complementary position with ORIX's Real Estate businesses. And while we would pursue the possibility of expanding our Real Estate businesses outside of Japan as well, we would like to concentrate our expertise, and also at the same time, the shift of human resources and also maximization of efficiency of the usage of capital and also the management as well.

After 2014, as a result of a turning the company as a consolidated subsidiary, the equity method had been enhanced from -- or increased from 31.7% to 64.1%. The Daikyo has an expertise of B2C, their expertise and also at the same time the management of construction and construction works and also the management of quality as well as maintenance and repair. So ORIX -- so they have a lot of expertise that ORIX is not equipped with.

However, we were not able to fully complement the functions of the 2 businesses. So this is why we have decided to take down the fence between the 2 entities and had decided to carry out the TOB as a result.

After we would convert Daikyo into our wholly owned subsidiary through the Real Estate-related group companies, we will try to integrate the businesses of Daikyo in our book, the Lions Mansion, Surpass, all these condominium-related brands, and also functional brands will be fully utilized in a flexible manner. So from the residential properties to major retail properties, hotel, [ real cans ] and the various different development by making full use of this development and the management capabilities internally while ORIX will provide with its financial functions, we should be able to come up with a comprehensive real estate group companies keeping a very good level of profit generation.

We have already been informed of the appointment to Osaka Umekita second round project. And also at the same time, the IR, the Indicated Resort project, that should be up and running soon, we will be engaging in various different real estate development-related project. That is why at this point in time, we would like to integrate all these real estate-related businesses at ORIX Group companies.

So the impact to the business performance as a result of Daikyo becoming a wholly owned subsidiary, there will be no major impact that is given to the balance sheet because it is already under consolidation. As to the P&L, it would not be subject to the profit generation on an equity-method basis, which means that the profit in fact would increase by 1/3 of what it is right now. So as a result of this accounting treatment, there will be some reversal of DTL, which will be posted in the third quarter of this year. So this reversal of DTL will amount to something around JPY 27 billion.

Next, I would like to explain the impairment that we have recorded for IL&FS. On the consolidated financial statements, during the second quarter we have recorded an impairment, writing down the entire investment book value of IL&FS.

Back in 1993, we first made the investment into IL&FS. And eventually, we increased our holding to 23.5% of the equity. 40.25% is held by government-related entities. And this company is the biggest infrastructure player in India. Unfortunately, in many projects, there was a delay in acquiring licenses from the government and there was a very difficult cash flow in terms of the payments made for the acquisition of land and the financial situation worsened. And eventually in September, they had a difficulty in making the payment obligations.

40% of the company is held by the government-related entities and also a lot of debt given from the banks. And the total debt is JPY 1.7 trillion. In order to avoid market confusion, the Indian government decided to replace the -- all of the members of the board and applied for a court hearing, and right away they started to -- the rehabilitation activity.

In ORIX, in the second quarter, we recorded the impairment of the whole of the amount. However, there is a remaining amount of JPY 8 billion as the FX adjustment translation and this amount will be kept on the balance sheet until IL&FS will be completely resolved. Therefore, we will keep this amount on the balance sheet for the moment. We cannot record an impairment yet.

Separately, from the IL&FS investment, in 2016, we made a joint investment back in 2016 into a wind power generation facility. There are a total of 7 projects, and ORIX's stake is 49%. The investment amount is JPY 17 billion as of September 2018. And there is a FIT of 25 years secured and almost all of the facilities are in operation. So the downside risk is very limited. And also, the structure allows no direct impact from the IL&FS itself. Therefore, in this project, we would like to manage the remaining issues by keeping control on our side, but we have to stay vigilant in handling the situation.

Equity investment can sometimes go bad with the time goes by. The lesson that we had learned is that we should never trust someone only just because we have a long-term relationship; otherwise, we might fail. Therefore, based on this lesson learned, we would like to further enhance the governance structure and strengthen our monitoring capability going forward.

Next, let me discuss a little bit about shareholder return. For this fiscal year, full year dividend payment assumption is 30% in dividend payout. In the previous analyst meeting, we told you that we would like to secure a 27% dividend payout ratio. However, given the financial soundness of ORIX Group at the moment, even if we increased the dividend payout to 30%, there would be no impact on the financial soundness. We believe that we can achieve 4% profit growth for this fiscal year given that the full year dividend payment will be 76% based on that. And so far, we have achieved more than 10% growth every year. Therefore, we don't know whether we can reach 10%. But given the low growth trend, we thought that the 25% may be too low, that's why we decided to give out 30%. And then the interim dividend will stay at JPY 30 as was already announced.

For the share buyback program, based on the 11% or more ROE for the full year and we will look at the situation of the investment pipeline as well as the capital adequacy and make a flexible decision based on those. Having said that, given the uncertainty around the political situation these days as well as possible changes in the financial markets and the bubble economy possibility or the economy of the United States going into the adjustment phase or is already in the adjustment phase, we have to make a careful decision.

We will keep monitoring the stock price situation rather than for securing 11% ROE. We would like to implement a share buyback program, taking the opportunity of the lower share prices if that happens.

This concludes my explanation. If you have any questions, we would like to respond to your questions for the rest of this time. But I am not familiar with the detailed numbers. So for detailed numbers, please ask questions tomorrow and the day after tomorrow.

This concludes my part. Thank you very much.

[Haruyasu Yamada, executive]

So let us entertain your questions. If you have any questions at all, please do not hesitate to ask us. So if you have any questions, please raise your hand. We have one of our staff members bringing the microphone over to you.

So maybe the first person at the front row?

[Kazuki Watanabe, analyst]

I am from Daiwa Securities, my name is Watanabe. I have 2 questions. First of all, and this is with regard to capital policy, it is not a shares repurchase, but you have emphasized the payout of the dividend. Why is that? And if we were to assume 4% of growth, so ROE of above 11% in 2019, I suppose there is a second capital adjustment being needed. So why have you -- would you be focusing very much on the payout as opposed to the shares repurchase is the second question -- or the first question. And the second question is with regard to your market forecast. If you were to look ahead in the next 2 to 3 years, what kind of asset class do you foresee as the biggest prospect of growth coming from? So if you could be so kind enough to share your personal market view.

[Makoto Inoue, executive]

As to the capital policy, first of all, at the time of Avolon investment, it -- there was no -- there was to be no goodwill amortization. So there is no kind of major concern in terms of the conversation that we had with credit rating. But unfortunately, the negative watch was given to us despite of our anticipation. So each of the analysts from different analysts, because there was a negative watch that was accorded to us from the credit rating company, you -- many of -- some of the analysts, in fact, giving us the comment that we cannot proceed with the investment of Avolon. So we were all driven to a corner somewhat at that time. But whether we should maintain A- rating, or in order for us to maintain A rating, we have to perhaps bring up the RAC rate to above 10% and 7%, for A 10%, for BBB 7%. So -- but we have decided to forget about this, but rather if we can maintain 4% of our growth according to our simulation, 11.6% or 11.9% or whatever the figure may be, but that was okay. But if we were to be above 11%, so if it goes to the level of 12%, of course, we have to take it back and reconsider. However, we will not know how things would unfold from here down the road. So therefore, as to the asset that we have, there could perhaps be a possibility of us proceeding with a divestment as well. I would not be able to go into much of the details of this, but we may be able to manage the cash that will be -- the proceed that will be generated. And maybe from December to March in the second half of this year, we would have to make a decision. So I will not be able to share with you my final answer to this question of mine at this point in time, but the reason why we have decided to increase the amount of dividend is very simple: because we have been growing at the pace of 10%, but this time this is a single-digit growth. So 27% of payout ratio with a single digit, it doesn't -- the math doesn't work out we thought. So as a trend of the market, 30% of payout ratio, in fact, is becoming an almost standard nowadays among the listed companies. So whether to carry out the repurchase program or to enhance or increase the payout ratio, we have decided to give way to payout ratio, prioritize it. And so that in light of the pipeline and the possible deals in the future, we have decided to opt for. And unfortunately, the share price had kind of -- was plummeted in the last week. So which means the ROA of 11%, in fact, is the kind of a threshold for us. And if the share price, of course, declines much further than what we had expected, there could perhaps be a revival of the repurchase program idea -- of carrying out the repurchase program. But it is hard to imagine what is going to be the development from here down the road. So this is why I would not be able to give you a straightforward answer to your question. In any case, my market view for the next few years, I have no answer. Because I may perhaps be made redundant, I may perhaps be stepping down as a CEO, you never know. But you see, this company has no fence. What I mean by that, we don't have any barriers. So we can in fact -- we have a function and also the capabilities and capacity in making an entrance in whatever the area that we can step into. So which means there could be a possibility of investing in the area that we have never even imagined in the past. So if the real estate -- it is not a one-way ticket. If real estate is no good then we can go to perhaps aircraft. If aircraft is no good, maybe PE. And if not PE, then infrastructure and so on and so forth. But we cannot imagine all the markets, of course, being completely plummeted. So therefore, if we were to focus on the industry where we can display our capabilities, I'm sure we can continue to grow further. And even if I were to share with you this at this point in time, sure, you would not be able to give credit to what I have just shared with you I suppose. But talking about solar power, for example, I think that we have already reached a peak here in Japan. So we have stopped making further investment here in Japan. Because if the FIT -- or the price of FIT right now, what we have started from Kyushu because there is a certain restriction to the power generation, so we have no intent whatsoever in making a new investment here in Japan so far as solar power is concerned. With the current pricing, there could be some small perhaps facilities. We may consider to divest as well. But of course, Umekita for example, of course, this is a consortium of 6 different companies and it will be JPY 100 billion worth of investment and this is going to be a development program. So in light of the location as well, this is going to be a 20 years or 30 years of development program -- project for Real Estate. And for ORIX, this is going to be the first of its kind because, in the past we -- our -- I think our project, real estate project that we were engaged in the past was very shortsighted. But there could perhaps be a possibility of us invest and hold whereas it was invest and divest in the past. So making use of our financial capabilities and engineering capabilities, by -- we will be able to create a market, if you like, with our ingenuity. And if we cannot foresee the industry growth, then we might just not decide to enter into such market. So you see, this is how we try to kind of act within whatever the market it may be. So what I -- of course, we do have certain views to certain industries. But ORIX, of course, we have so many different small bits and pieces of project. Although we do have a market view, but as to the market view of the macroeconomy, we don't that I can -- so far as I can share with you.

[Masao Muraki, analyst]

My name is Muraki from Deutsche Securities. I have 2 questions. The first question is about overseas business. Other than IL&FS, the impairment in overseas entities were incurred in several occasions. So with IL&FS, with this, have you already completed all of these concerns? Or do you still have remaining concern or entity at the moment? That's my first question. The second question is about the Real Estate business. For Daikyo, in the past, you have taken off your equity and you said that you may sell Daikyo, that was the stance that you had before. Going forward, for ORIX Real Estate and Daikyo, as you integrate into 1 entity, do you no longer have an option of selling off, divesting Daikyo part? In the case of Daikyo, Daikyo is the seller at this moment. And at the moment, you said that you cannot implement a major M&A. But as an ORIX Group for real estate in Japan and overseas, buying another company in real estate, what is the prospect of acquiring another company in real estate market?

[Makoto Inoue, executive]

For Overseas, before IL&FS, we had a [ troubled ] MedGulf. There were some failures, and we have already recorded impairments for all of these. Therefore, our stance towards overseas M&A has become more cautious. So we are rebuilding our structure. So other than IL&FS, we don't have any more entities that might fail going forward. But I can't say 100%. My biggest concern is in Southeast Asia, we have a leasing company network. And since 40 years ago, we have started building this network. And as the leasing companies, we still keep the network. Unfortunately, there is a very intense competition and net spread of 3%, 4%, 5% has been shrinking to 3% to 2% and at 2% level today. Therefore, the question is whether it is worth keeping the leasing company network or should we conduct a scrap-and-build and restructure this network. Otherwise, we might face another IL&FS issue. Therefore, we have to keep monitoring and restructure wherever we can and switch the asset. However, so far, we don't have any concrete entity other than IL&FS. For Daikyo, what is making money in Daikyo is the condominium management. For development business, they have almost no profit. And earnings achievement, well, they only earn earnings in the first quarter only. In savings and cash, they have more than JPY 50 billion. They don't have any borrowings at the moment. However, they have difficulty in taking aggressive stance. So a lot of people there are in the lukewarm water. And there are several capable people in Anabuki as well. They have capability at Anabuki and they have the management capability, property management capability, at Daikyo. And they have a huge asset of the condominiums they have built in the past. How can we utilize those? For example, there are 40 people in the construction management division. So in the development project of ORIX, maybe we can get their help for the development management of the properties. Once we asked them to do that, but they said that they only have experiences with condominiums and not in retail office buildings and I was upset to hear that because their expertise is management of assets. Whether it's condominiums or office buildings or hotels, the basics should be the same. So rather than for Daikyo, I thought that as the ORIX Real Estate segment, we should integrate all of the capabilities, that will be more effective. That's what I thought. And at Daikyo, for example, they can acquire land and they only do so for condominiums. However, how about other properties, for example, for warehousing, can they buy land for warehouses or commercial retail facilities? Unfortunately, in the past because of the silo, they couldn't do that. And we didn't have good communication. This is something we have to improve, otherwise, it doesn't make sense to keep holding Daikyo. And unfortunately, there were several companies who wanted to buy -- acquire Daikyo in the past. And we were wondering whether we should sell or not at one point. However, the situation is only 66%. So that is not high enough or low enough and we decided not to sell them, and we wanted to utilize their capabilities. And we decided to integrate their capabilities into ORIX so that we can have a better synergy and then we have decided to work together for several years. And then with ORIX Real Estate group, as a whole group, because we are the top 4 -- or top 5 player already, we can be successful. And we can even list the stock on the stock exchange again. And then if we get a good price, we can sell at that time. We can divest at that time. That is one of the options. Did I answer your question?

[Masao Muraki, analyst]

So if there was to be any kind of additional piece that is needed, do you think that you would be -- try to fill the gap by acquiring some other real estate company?

[Makoto Inoue, executive]

No is the answer because the price is way too high. So I really hope the real estate market would experience a crash. But for the time being, we would just stick with what we have. And if there was to be a crash of the real estate market, I would now be able to, of course, acquire S class, but maybe A class, B class. We want to prepare ourselves for that opportunity. That would be the answer to your question.

[Haruyasu Yamada, executive]

So let us entertain the next question? Any questions? So the person in the middle.

[Shinichiro Nakamura, analyst]

I am from SNBC Nikko Securities. My name is Nakamura, and again, I have 2 questions with regard to capital policy. You talked about the payout ratio being increased. So how -- if you could be so kind and we ask the question about the logic, how you pushed up this payout ratio. But at the time of interim result, why did you make an announcement at this point in time inclusive of what went on behind the scene, especially at the board level, if you could be so kind enough to share with us. And also, to set a minimum amount of payment of the dividend, if there was to be any kind of discussion in that regard, please share with us. And the second point is with regard to the share repurchasing program as compared to the value of the equity, I think you were considering to carry out the -- so to push up the payout ratio. But may I take it that you will remain to be flexible in the execution of the repurchase program?

[Makoto Inoue, executive]

As to the timing of the payout, it is more about my timing, my personal timing, and it is not the -- more of a company's reason because I really felt the need to push up the payout ratio above 30% over the past 1 month or so. The reason that I wanted this to be more than 30% is because of decline of the profit from one thousand six -- sorry, JPY 166 billion to JPY 150 also billion. So this is why we had to experience this decline in the profit, which we hadn't experienced very much in the past, and I thought there will be a crash of equity price. And to prevent this or in order to stop that, what will be the best way? I started to kind of give -- ponder upon the various different ways and there are various different companies that, in fact, are offering 30% -- or above 30% payout ratio. And at the time of the information session to the retail investors, they often tell us that why can't we not push it up to the level of 30%. And I started to feel that this might perhaps be the answer. So the reaction from the board members, 30% in fact was not one of the major topic because in the actual fact it is above 30%. But I was told, Mr. Inoue, as with regard to the repurchase program, don't ever come out with an easy decision as to execution of the repurchase program. One shareholder, in fact, told me that just to keep the level of the equity price, carrying out the repurchase program is nonsensical, he said. So this is why out of the 6 board members, they were all negative, the 6 members out of the 6. And the reason for that is because we have been growing our business by making a new investment in the past, so this has been a track record of ORIX. So we don't want to be seen as cowardice by carrying out this repurchase program just for the sake of keeping the level of equity price. But raising the payout ratio, they had no objections. So if we can maintain ROA of 11%, to maintain this ROA of 11%, we don't think that this is a royal kind of road for us to be raising the payout ratio for the sake of maintaining this ROA of 11%. But at the time of carrying out this repurchase of JPY 50 billion, we haven't, of course, discarded our way of thinking as we did at that time. So -- and of course, the share price had fallen pretty much since last week. So this is why we would remain to be flexible in that regard. But to be honest, the shares repurchase program, together with the Board of Directors meeting, the board, we have not reached the consensus or the agreement. And as to the minimum level of the payout, 27%, shall we maintain the 20% and create a minimum amount of payment -- payout, but we have decided to -- not to set a minimum amount or yens of the payment of the dividend. However, to set 30% of payout ratio because we think that we can maintain this 4% of growth. So this is why we have decided to come out with this payout ratio of 30%.

[Natsumu Tsujino, analyst]

My name is Tsujino from Mitsubishi UFJ Morgan Securities. I have 2 questions. First, Avolon. In the past 1 year, the assets increased significantly regarding Avolon. So regarding the group, you had to decrease the leverage of the whole entire group. Regarding that point, what is your view as a company? How are you going to be involved? Earlier, you said that you are dispatching a director or directors and you have a veto right for resolutions. What is the future course? Could you share us more details as much as you could, that's my first point. And the second point is about NXT. The AUM of this business is very big. And for this company or business as well as an asset, there was an increase of asset or BS, balance sheet, itself. So going forward, for NXT, in what manner are you going to increase their profits and earnings without increasing the balance sheet of assets too much? Is it possible to increase -- keep increasing AUM without increasing the balance sheet?

[Makoto Inoue, executive]

You said the increase of assets and you mentioned that -- rather than that, we are not paying attention to that. The leverage is 2x now, 2.2x leverage now. We don't have any intention whether to increase or -- well, maybe decrease, but we don't necessarily have to decrease. What we are trying to do is to achieve 3% ROA and 11% ROE. These are the benchmarks. So we are thinking about what we have to do in order to achieve those. Well, it happens to be this way that assets are increasing as of today. But it is just like this as of today. But that's not our intention going forward. Of course, if there are good assets, we will increase. And at this time, there was an increase in assets because in life insurance business, we are holding a lot of cash because in the past we sold off a lot of assets. And cash that will be removed from the balance sheet and then reinvested. That's why you think that this is increasing, but it is because of that. As for NXT, out of JPY 600 billion, more than half has been sold to investors. But JPY 200 billion asset is something they will still have. But at the time we acquired this company, we put together the 3% provision -- put aside 3% provision so that we can still keep safety margin even of something like GFC happens again. And we do not intend to increase the asset anymore. We are part of the syndication, so when there are syndicated assets, 90% or 95% of the syndicated loans will be sold off to the investors. This is the premise. It is not our intention to increase our assets in this company.

[Natsumu Tsujino, analyst]

Sorry, regarding the first point, the Avolon's leverage will be reduced. How -- what will be your involvement in that?

[Makoto Inoue, executive]

For Avolon, 30% equity method investment is something we made and we cannot make a leverage. But because of that, for this 30% portion, going forward, it depends on the Hainan Group. As you know, Hainan Group has various different issues. Therefore, there is a possibility that the Hainan Group may sell off their stake to a third-party. But at that time, we have a veto. Therefore, it's possible that we might take a majority stake in lieu of Hainan, but it depends on the future situation. Having said that, with Avolon, because of the acquisition with Hainan in the shareholders agreement between Hainan and ORIX, we have secured various different rights. And we have some coordination with Avolon as well, and Avolon wants to utilize our strength in the secondary market. And Avolon's asset will be left up to ORIX so that they can sell their assets and we can secure commissions. And by having ORIX as a player in the specter, there's already a tightening of corporate bonds. So by 50 basis, 70 basis, they are getting a benefit. Because of the ORIX presence, Avolon's credit ratings may go up and then there will be more benefit. And also, Avolon can give their assets to ORIX so that we can sell them to Japanese investors and we can earn some commissions. So there are a lot of synergy opportunities, but when it comes to 30% equity stake, there is no liquidity at all. There is no chance for us to use a leverage for this portion.

[Natsumu Tsujino, analyst]

Understood. Sorry for asking many times, but I'm finally beginning to understand. So Avolon will give the assets to ORIX to sell to investors? As you do that, what will be the expected speed and what is the expected revenue that you are going to get? Do you have any more details?

[Makoto Inoue, executive]

To be honest with you, we are still in discussion with Avolon and the acquisition has not been completed yet. Probably the completion will be next week. And after that, on the 13th, I will go to Dublin to attend the very first board meeting. I am -- not as a board member, but regarding the strategy, I will have various discussions there. To be honest with you, we haven't put in the money. Therefore, even if we have this kind of discussion, they wouldn't listen to us 100%. So it might take some more time. Please understand.

[Haruyasu Yamada, executive]

So any other questions?

[Koki Sato, analyst]

I am Sato from Mizuho Securities. I have 2 questions. The first and I would like to ask questions about Avolon as well. So you talked about it is dependent on Hainan Group. You may perhaps acquire the rest, in other words, becoming a majority holder of the stake. But there are some other buyers it is rumored. So there are various different assumptions. Just as mentioned by Mr. Inoue, you do have an appetite should there be an opportunity. So say if you were to acquire the rest of 70%, it will be 50 billion -- JPY 500 billion. Do you have the financial capabilities? Or are you quite comfortable with this relations with Avolon with 30% of stake holding the company on an equity-method basis is the first question. And the second with regard to the domestic solar power business. So FIT, it is true that the business had already peaked out. So therefore, you may perhaps -- the portfolio, in fact, is designed just for retention purposes. So what kind of -- what would be the changes that will be brought about under what conditions?

[Makoto Inoue, executive]

So with regard to Avolon, to begin with, you see we started out the discussion in holding the stake to a majority and that will be quite interesting and attractive. So we will be able to come up with a consortium we thought, and that was the first suggestion. So if we can have a majority, then if we were to have syndication, our investment will be JPY 200 billion. So it would be done on a consortium basis. But then after the discussion, it was brought down to 30%. But as Hainan Group, they are under pressure to make a further divestment and that they are, in fact, considering to -- and they did make an offer for the Hainan container leasing business as well, but we declined it. So as Hainan Group, in China, at the asset management committee meeting, the aircraft leasing businesses, other than that, they have decided to dispose of the businesses and the China development bank is going to be right behind it, standing full support to the company. Well, while we think that they may perhaps keep the Avolon because that was a decision that they had made, but we don't want them to be selling the rest of the stake to someone that we don't particularly kind of form a partnership with, and we would not be able to pay the rest of the JPY 500 billion. But we will be able to come up with a syndicate and create a consortium. And we had -- because we were already in discussion because we were making an investment to 51% initially, that was the proposal. But if we don't have the financing capabilities, then we may decide to just let go of the opportunity. It has a value, so therefore, from a third-party's perspective, our equity, the 30%, could be quite an interesting stake to acquire from other investors' perspectives so...

[Koki Sato, analyst]

So how about the solar power?

[Makoto Inoue, executive]

As to the solar power business, the operations and maintenance, we are trying to internalize our effort as much as possible. If we were -- whether we divest it or not divest it in the next 20 years or so, the capacity of electricity, in fact, is going to deteriorate. So if we were to leave it as it is in the next 20 years or so with 1,000 megawatt, JPY 25 billion worth of deterioration may perhaps take place, which means that we have to maintain it. So the technology would have to be dedicated, so that we have -- we can protect the facility to deteriorate any further than where it is right now. So which means, I may have said this before, but we have an intent in not wanting to maintain it for the rest of our life, but rather we have, of course, an intent in wanting to divest it and you may perhaps have a question what would we do with the proceeds, of course, we are of course considering what can be done with the proceed that we may be able to generate.

[Haruyasu Yamada, executive]

So I think it's time, but I think this is going to be the last question that we can perhaps entertain.

[Futoshi Sasaki, analyst]

I'm Sasaki from Merrill Lynch Japan. I have 1 question. For the Kansai airport, unfortunately, there was a typhoon and trouble. So what is your understanding of the event? And for the near future, is there any concession business impact? And the IR in Osaka, because of the Kansai Airport issue, is it possible that this issue may impact the IR in the future?

[Makoto Inoue, executive]

For the Kansai Airport, with VINCI Group, we have a joint operation for the last 2.5 years -- for more than 2 years, and very good high profitability was enjoyed so far. And towards the mass media, we didn't necessarily do a good job. Because of that, there was a certain bashing. That's the situation. The problem is as follows: for BCP, for the B2B business, ORIX does have an experience. But with the BCP for B2C business was not something that we were very good at. 3,000 people plus 4,000 people were involved, and at the beginning, the employees who were not needed should just stand by at home. So B2B BCP, this is just acceptable. But for B2C, that is different. All of the employees have to go to the Kansai Airport to help the customers, but we didn't do that. Because of that, the 7,000 employees that we have were not necessarily utilized so well to help the customers. And also, the electricity was all in the underground floor. We couldn't secure all the water and electricity and there was a blackout and announcement did not work so well. So all of the lessons we learned and we are involving the national government today in the improvement plan committee to talk about the bank protection plan and how to utilize the electricity, which is still kept underground at the moment. Within this month or by the middle of November, we should be able to announce specific plans and in discussion -- we are in discussion with the national government. The national government may or may not secure the budget for that. But problem with the Kansai Airport this time, what was unexpected was the tanker crashing into the bridge, which blocked the traffic. That was something we didn't expect. However, there is a business interruption insurance policy that we bought. Therefore, there is no impact at all for the earnings of this fiscal year because the earnings are secured based on the earnings of the last year. For September, there was a big loss. However, this will be compensated. And going forward, some people advocate semi-private project, so there is a big negative campaign going on. However, in the local area, the recovery was made fairly quickly in the matter of 5 days and there was good, positive comments as well. BCG and -- BCP and ORIX together -- working together, both of the companies lack experience. That's in the comment from local newspapers. But we are just trying to respond to those negative comments. We are volunteering for Chitose Airport concession. Because of this, I don't think the concession will be given to ORIX-VINCI Group anymore because of that accident. Although we are working very hard. Regarding IR, there's no impact on the IR. Now there's a legislation work going on for integrated reports and 4 or 5 companies are trying to bid, MGM, Crown and other companies are likely to be the possible bidder. And also whether Yokohama comes first or Osaka comes first, we don't know yet because Osaka may also have a chance for the expo. We have to see until the middle of November. In the newspaper, people talk about the Trump, their discussions and talking about sons, but we don't know the future direction yet. Therefore, which partner we want to work with, we haven't concluded an MOU with anybody yet and the choice of the company should be made sometime in the middle of November. So if we are to enter into an MOU, this will be disclosed. So please wait for the press release. [ Thank you very much. ]

[Haruyasu Yamada, executive]

Thank you very much for all your questions. We'd like to conclude the Q&A for now. And also, I would like to ask a great favor. Please read out the questionnaire before you make an exit from this room.

Thank you all for much for this -- in your participation for this information meeting. Thank you so much.