Bangkok--20 Apr--Fitch Ratings
Fitch Ratings has today downgraded Maybank Kim Eng Securities (Thailand) Public Company Limited's (MBKET) National Long-Term Rating to 'AA(tha)' from 'AA+(tha)'. The Outlook is Stable. The company's National Short-Term Rating was affirmed at 'F1+(tha)'.
MBKET's ratings are driven by our expectations of institutional support from its Malaysia-based parent, Malayan Banking Berhad (Maybank; BBB+/Stable). The downgrade in MBKET's rating is consistent with a similar rating action for the parent's Long-Term Issuer Default Rating (IDR) on 13 April 2020, while also taking into account relativities within the Thai national rating scale.
KEY RATING DRIVERS
National Rating
The National Rating reflects Fitch's belief that MBKET would benefit from extraordinary support from its ultimate parent. Fitch thinks the Thai subsidiary is strategically important to the parent, which has an 83.5% stake in MBKET, exercises a high degree of management control and integrates the subsidiary closely with the group. The subsidiary also shares its parent's brand. MBKET's asset size, at less than 1% of Maybank group's total assets, is small compared with that of its ultimate parent. Hence, any required support would be immaterial relative to the ability of the parent to provide it. The National Rating also reflects the relative profile of MBKET in the Thai National Rating universe.
Subordinated Debt
Fitch rates MBKET's subordinated debt based on our Corporate Hybrids Treatment and Notching Criteria as Thai securities firms are not subject to bank-style capital regulations. Fitch has notched MBKET's subordinated debt one level below the anchor rating of 'AA(tha)'. The notching reflects the notes' higher loss-severity risks as subordinated noteholders rank after senior creditors in the priority of claims. The notching also incorporates the subordinated debentures' lack of going-concern loss-absorption and equity conversion. Fitch has assigned an equity credit of 0% to the issue, since the tenor is relatively short and the instrument is not designed to be a permanent part of the company's capital structure.
RATING SENSITIVITIES
National Rating
Factors that could, individually or collectively, lead to positive rating action/upgrade:
The parent's increased ability to support MBKET could lead to an upgrade of its rating. This may be indicated by an upgrade of Maybank's Long-Term IDR, while also taking into consideration MBKET's ratings relative to the Thai national scale. Alternatively, an increase in the level of MBKET's strategic importance to the group, such as in terms of MBKET's contribution to and its role within the group, may also lead to an upgrade. For example, if MBKET increases its profit contribution to become a core part of the group, such as contributing 20% of the group's profit or substantial business referrals that lead to a significant change in the group's performance.
A Positive Outlook on Maybank's rating will also lead to a Positive Outlook on MBKET's National Rating.
The National Short-Term rating is already rated at the highest of the scale; hence there is no upside.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
A reduction in Maybank's ability to support MBKET could result in a downgrade of the subsidiary's ratings. This would be indicated by a downgrade in the parent's Long-Term IDR, as well as Fitch's consideration of MBKET's relative strengths on the Thai national rating scale.
Should Fitch perceive the parent's propensity to support MBKET is reduced, the company's ratings may also be downgraded. This may be indicated by a substantial reduction in the level of management control, operational integration, and shareholding such as to below 75%, weakening linkages in terms of integration and name or branding association or a sign of declining commitment to provide financial and operational support to the Thai subsidiary. However, Fitch does not expect these events to occur in the near term.
A Negative Outlook on Maybank's rating will also lead to a Negative Outlook on MBKET's National Rating.
SUBORDINATED DEBT
Factors that could, individually or collectively, lead to positive rating action/upgrade:
An upgrade of MBKET's National Long-Term Rating would lead to an upgrade of its subordinated notes.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
A downgrade of MBKET's National Long-Term Rating would lead to a downgrade of its subordinated notes.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Financial Institutions issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
MBKET's National Ratings are related to those of Maybank, its ultimate parent.
Additional information is available on www.fitchratings.com