Bangkok--17 Oct--Fitch Ratings
Fitch Ratings (Thailand) has upgraded Kim Eng Securities (Thailand) Public Company Limited’s (KEST) National Long-Term rating to ‘AA-(tha)’ from ‘A(tha)’. The Outlook is Stable. A full rating breakdown is provided below.
The upgrade reflects benefits from KEST integrating with its new shareholder, a subsidiary of Malayan Banking Berhad (Maybank; rated ‘A-’/Stable), as well as likely support from the strong bank shareholder.
The acquisition of KEST is part of Maybank’s strategy to become a regional financial services leader by end-2015. In July 2011, Maybank through its wholly-owned investment arm, Mayban IB Holdings Sdn Bhd (MIB; formerly Aseam Credit Sdn Bhd.), completed an all-share acquisition of Kim Eng Holdings Limited of Singapore (KEH; which holds 55.75% of KEST) and directly purchased a 28% stake in KEST, resulting in the group’s effective interest of 84% in KEST.
KEST is the largest securities company in Thailand with strong retail brokerage franchise (with a market share of 11.5% in H111), which should aid Maybank; which still has no presence in Thailand. Maybank is now focusing on integrating with KEST on cross-border and cross-product opportunities, as well as attaining an oversight of the subsidiary’s risk management framework.
KEST’s profitability was strong in 2010 and H111, backed by robust securities trading volume. KEST will remain focused on securities brokerage with limited proprietary trading, while aiming to increase investment banking (IB) transactions on collaboration with Maybank. KEST’s capital remains strong with a net capital ratio (NCR) of 92% at end-June 2011 (end-2010; 96%). Integration with Maybank should help strengthen KEST’s IB business and mitigate risks of higher volatility after the full liberalization of brokerage fees in 2012 and of weakened liquidity amid high growth.
The Stable Outlook is based on Maybank’s Outlook. KEST’s National Long-Term rating implies a two-notch differential from Maybank’s IDR and is the strongest amongst local securities firms. The rating may be upgraded if there is stronger evidence of parental support ie. explicit financial commitment or liquidity support provided by Maybank. Any change in Maybank group’s shareholding structure or support policies and commitments could affect KEST’s rating.
Maybank is Malaysia’s largest bank with an extensive network spanning over 17 countries in south east Asia including Singapore, the Philippines, Indonesia and Vietnam. Maybank’s total consolidated assets stood at USD136.4bn at end-June 2011. The bank focuses on retail and corporate banking with strong IB operations. Malaysia’s state-controlled entities/funds own close to 70% of the banking group.
KEST’s ratings:
National Long-term rating upgraded to ‘AA-(tha)’ from ‘A(tha)’; Outlook Stable
National Short-term rating upgraded to ‘F1+(tha)’ from ‘F1(tha)’
National Short-Term rating on bills of exchange programme upgraded to ‘F1+(tha)’ from ‘F1(tha)’