Bangkok--Oct 7--Fitch Ratings
Fitch Ratings (Thailand) has today assigned an expected National Short-term rating of ‘F2(tha)’ to Finansa Public Company Limited’s (“FNS”) Bills of Exchange of up to THB1 billion with a maturity of up to 270 days. The rating is based on the creditworthiness of FNS - rated National Long-term ‘BBB(tha)’ with a Stable Outlook and Short-term ‘F3(tha)’ - and the credit enhancement from the 50% principal guarantee by the Netherlands Development Finance Company (“FMO”). As FMO, which is 51% owned by the State of The Netherlands, receives sovereign support under the 1998 Agreement with the State of The Netherlands, its credit rating is similar to the Netherland sovereign (rated ‘AAA’/Stable/‘F1+’).
FNS Bills of Exchange holders expect to receive payment of principal firstly from FNS. In the event FNS fails to meet the payment, FMO will make payment of 50% of principal only. The partial guarantee from FMO reduces the loss to investors when a default occurs. Nonetheless, the guarantee provides that the FMO will have subrogation rights against FNS once it has paid out any amounts in connection with the guarantee and the Bills of Exchange holders may be claiming in competition with FMO in the event that the Bills of Exchange are not paid out in full by FNS or if FNS becomes insolvent. This could result in a lower recovery rate for the Bills of Exchange holders.
The credit ratings of FNS reflect the firm’s financial holding company structure, revenue diversification 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.
In 1H05, FNS’s net income fell to THB123.4 million from THB261.1m in 1H04. While FNS’s earnings and profitability outlook for 2005 is weaker, earnings volatility is already factored into the rating. Impaired loans fell to THB322.7m (or 15.8%) at end-June 2005 from THB345m (or 15.3%) at end-2004. However, the group’s loan loss reserves appear low at THB97.2m, equivalent to only 30.1% of impaired loans, implying some risk of further provisioning. FNS’s lack of support from a strong financial institutional shareholder makes it more vulnerable to event risk such as the recent licence rejection or periods of market volatility. Natural Park, a Thai property developer, and currently FNS’s largest shareholder with an 18% stake, is financially weak and has recently announced that it intends to sell its shares in FNS. Members of FNS’s management team hold an approximate 34% stake in FNS.
FMO was established by the State of The Netherlands and the Dutch business community in 1970. Currently, the Dutch State holds 51% while the large Dutch banks hold 42% of its shares. FMO’s main activity is to support the private sector in developing countries and emerging markets in Asia, Latin America and Central and Eastern Europe with an objective of contributing to the structural and sustainable economic growth in these countries and, alongside the private sector, obtain healthy returns. According to the agreement between the State of The Netherlands and FMO signed in 1998, the State of the Netherlands shall prevent situations arising in which FMO is unable to meet its obligation on time. Such obligation includes guarantees given to third parties in respect of the financing of private companies in developing countries. As a result, Fitch believes there is an extremely high probability of Netherland government support for FMO in the event this is needed.
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.
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