Bangkok--Dec 20--Fitch Ratings
Fitch Ratings (Thailand) has assigned Finansa Public Company Limited (“FNS”) National Long- and Short-term ratings of ‘BBB(tha)’ and ‘F3(tha)’ respectively, with a Stable Outlook. The ratings reflect FNS’s financial holding company structure, revenue diversification, improving profitability, and adequate capital and liquidity positions, but also take into account its lack of a strong financial institutional shareholder, exposure to market and credit risks and its dependence on volatile brokerage earnings, investments and proprietary trading, as well as the expected increase in leverage to fund a capital injection into its finance subsidiary.
FNS reported net income of THB578.6 million in 2003, a significant improvement from the THB227.4m of 2002, due to higher interest and dividend income from investments and proprietary trading, as well as improved brokerage and investment banking income. In 2003, revenue from investments and its brokerage business accounted for 33% and 30% of the group’s total revenue, respectively. FNS’s earnings are likely to fluctuate as its brokerage and investment banking income is dependent on the volatile performance and trading volume of the Thai stock market. Meanwhile, Fitch notes that rising interest rates may affect the value of its bond investments.
Finansa’s credit risk stems primarily from its finance businesses and corporate bond investments. At end-September 2004, FNS’s impaired loans amounted to THB496.6m, or 23.5% of total loans and receivables, from THB277.2m or 12.1% at end-June 2004, due to more stringent loan classification criteria set by the Bank of Thailand (“BOT”). The group’s loan loss reserves also appeared low, at THB125m, equivalent to 25.2% of impaired loans, implying some risk of further provisioning. With regards to its securities business, credit risk from margin lending appears limited given that the majority of the firm’s brokerage trading volume is internet trading, which requires full upfront deposits. However, Fitch notes that FNS’s securities subsidiary is also exposed to equity underwriting risks. FNS’s market risk exposure also appears high, owing to its heavy reliance on income from investments and proprietary trading.
At end-2003, FNS announced plans to merge its finance subsidiary, Finansa Credit (“FC”) with Bangkok First Investment and Trust and apply for a universal banking licence. If approved, FNS will likely inject THB3.2 billion into FC. FNS would then hold a 77% stake in the merged entity. FNS expects to issue debt instruments and raise equity through the exercise of the management’s warrants to fund this capital injection. Such a move will increase FNS’s unconsolidated gearing and double gearing ratios, although they are unlikely to exceed 1.0x.
At end-September 2004, FNS’s current ratio of 1.3x suggests the firm has adequate liquidity to meet short-term debt obligations. Its equity/asset ratio stood at 30.4%, which appears satisfactory for an investment bank. Nonetheless, further asset growth is likely to see its equity/asset ratio fall over the next two years. Moreover, FNS lacks the support of a strong financial institutional shareholder making it more vulnerable during periods of market volatility. Fitch notes additionally that Natural Park, a Thai property developer, and currently FNS’s largest shareholder, appears financially weak.
Contact: Chaiyapat Paitoon, Vincent Milton, Bangkok +662 655 4762/4759; David Marshall, Hong Kong +852 2263 9963.
Note to Editors: Fitch’s National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated ‘AAA’ and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as ‘AAA(tha)’ for National ratings in Thailand. Specific letter grades are not therefore internationally comparable. End.