Bangkok--17 Nov--Fitch Ratings
Fitch Ratings (Thailand) has published Bangkok Commercial Asset Management Company Limited’s (BAM) National Long-Term Rating at ‘AA-(tha)’. The Outlook is Negative.
A full list of rating actions is included at the end of this commentary.
KEY RATING DRIVERS
BAM's National Ratings reflect Fitch's expectation of a high probability of support from the Thai sovereign. This is due to the 100% shareholding by the Financial Institutions Development Fund (a unit of the Bank of Thailand), and the track record of regulatory support (for example, in the classification of BAM's notes as banks' liquid assets).
The Negative Outlook is driven by uncertainty about plans for an IPO by BAM, which would dilute the state's shareholding in BAM. In Fitch's view, the plan indicates the state may have reduced propensity to extend extraordinary support to BAM.
BAM's core business is in resolving distressed assets in the financial system. It has had a sound operating performance, with consistent profitability and dividend contributions to its shareholder. The company's business model requires significant lead time for asset resolutions, and as a result it needs to be supported by access to long-term funding. BAM is also vulnerable to a potential sustained downturn in property sector because the bulk of its collateral and foreclosed assets are in this sector.
RATING SENSITIVITIES
A clear indication from the state of the importance of BAM in its plans for the financial sector, or a long-term commitment to maintain the existing stake in BAM would lead to a revision of the Outlook to Stable and possibly a re-assessment of the National Long-Term Rating.
Meanwhile, a significant reduction in the willingness of the state to support BAM, such as through a large reduction in its shareholding or the lack of commitment to maintain a majority shareholding, could lead to negative rating actions.
This is because a lower propensity of state support could lead to reduced regulatory advantages given to BAM, a higher cost of funding, and a greater need to maintain strong stand-alone financial buffers such as in the form of leverage or liquidity. In particular, a reduction in the government's stake to below 50% could lead to a multiple notch downgrade of the National Rating to the 'BBB(tha)' range, while the rating may be as low as 'BBB+(tha)' if the government reduces its stake but maintains majority ownership, depending on BAM's target financial profile and the continuance of state linkages and regulatory advantages.
The list of rating actions is as follows:
National Long-Term Rating published at 'AA-(tha)'; Outlook Negative
National Short-Term Rating published at 'F1+(tha)'