Bangkok--12 Apr--Fitch Ratings
Fitch Ratings (Thailand) has revised Finansa Public Company Limited’s (FNS) National Long-term rating Outlook to Negative from Stable. Its ratings have been affirmed at National Long-term ‘BBB(tha)’ and Short-term ‘F3(tha)’.
The Negative Outlook revision reflects the FNS’s increased financial leverage and the group’s weaker liquidity position. The FNS group’s capital position has been eroded by weak financial performance in the last five years, and Fitch expects earnings recovery to be only modest and susceptible to market volatilities.
On a stand-alone basis, FNS’s leverage continued to increase with the debt/equity ratio of 1.25x at end-2010 (2009: 1.19x; 2008: 0.67x), while liquid assets/short-term debt declined to 1.6% at end-2010 (2009: 2.4%). Double leverage (investment in subsidiaries and associated companies/equity) was high at 186% at end-2010 (2009: 165%), indicating increased use of leverage to fund long-term investments within the group.
The ratings also consider positively FNS’s reduced risk profile as a result of its exit from the lending business. However, the ratings are constrained by its still feeble operating performance and weak funding profile, as it relies mainly on short-term wholesale funding and intergroup borrowings.
The ratings may be downgraded if further weakening of its financial performance materially impacts the capital position and if leverage and liquidity deteriorates both at the group and FNS level. Meanwhile, the Outlook could be revised back to Stable if there is material and sustainable improvement in financial performance leading to significant improvement in liquidity and leverage at FNS’s level.
FNS’s business profile has changed considerably, after it merged its securities brokerage business with two other domestic brokerage firms, terminated its finance activities, exited from non-core businesses and diversified into non-financials involving long-term lease of industrial estate properties through a 49.9%-owned associated company. Although FNS’s investment into this company is capped at THB500m, this represents a sizeable investment of about 50% of FNS’s equity and 38% of the group’s equity at end-2010. Over the long term, the group’s business is expected to be anchored by its asset management and investment banking business. In 2010, FNS turned around with a modest profit of THB7.8m, following four years of losses, primarily due to lower expenses and reversal of bad debt provisions. Investment banking unit was the largest earnings contributor in 2010 but remains susceptible to uncertain capital market conditions.
Most of FNS group’s funding is short-term, including bills of exchange (B/E) issued to financial institutions and high-net-worth and retail clients, which are generally rolled over upon maturity. Nonetheless, outstanding B/E continued to decline while liquidity position remains adequate with liquid assets to short-term debts at 97% and current assets to current liabilities at 1.3x at end-2010. The group’s capital position is adequate and has stabilised following significant declines due to continuing losses in 2006-2009. Nonetheless, the equity/asset ratio strengthened further to 72% at end-2010 from 65% at end-2009 (30% in the past), although this is mainly due to a contraction in loans and investments.
Established in 1989 by former executives of Chase Manhattan (Thailand), FNS’s services include primarily fund management, securities brokerage and investment banking operated through wholly owned subsidiaries and associated companies. Senior management holds about 50% of FNS’s shares.
Contacts:
Primary Analyst
Narumol Charnchanavivat
Director
+662 655 4763
Fitch Ratings (Thailand) Limited
55 Wireless Road
Lumpini, Patumwan
Bangkok 10330
Secondary Analyst
Wasant Polcharoen
Director
+662 655 4758
Committee Chairperson
Jonathan Lee
Senior Director
+886 2 8175 7601