Bangkok--Feb 7--Fitch Ratings
Fitch Ratings (Thailand) has today affirmed Finansa Public Company Limited’s (“FNS”) National Long-term rating at ‘BBB(tha)’ with a Stable Outlook, and National Short-term rating at ‘F3(tha)’. The agency also affirmed the National Short-term rating of ‘F2(tha)’ on FNS’ THB420 million 270-day Bills of Exchange, which is 50% guaranteed by the Netherlands Development Finance Company (“FMO”).
The ratings of the company reflect FNS’ financial holding company structure, its revenue diversification, and its adequate capital and liquidity positions. However, the ratings also take into account FNS’ lack of a strong financial institutional shareholder, its exposure to market and credit risk, and its dependence on volatile brokerage earnings, investments and proprietary trading. The Outlook for the rating is Stable as the company’s profitability, capital and liquidity positions should generally be maintained. However, Fitch notes that the downside risks could stem from a worse-than-expected weakening of Thailand’s economic growth or market volatility which could negatively affect FNS’ earnings.
In April 2005, the Bank of Thailand (“BOT”) rejected a banking licence application made by FNS’ finance subsidiary - Finansa Credit (“FC”), on the basis that FC failed to pass the BOT’s qualification criteria. While the rejection of FC’s banking application raised concerns about FNS, Fitch views that it does not appear to have had a significant impact on FNS’ funding, its liquidity or its business operations.
FNS reported a net income of THB477.6m in 2004, down from THB578.6m in 2003. The fall was due mainly to a decline in revenue from investments and higher operating and administrative expenses. In 2004, revenue from its investments and brokerage business accounted for 24.3% and 44% of the group’s total revenue respectively. In 9M05, net income fell to THB161.5m from THB378.8m in 9M04 due to lower brokerage income and a continued decline in revenue from investments.
The agency notes that FNS’ credit risk stems primarily from its finance businesses and corporate bond investments. At end-September 2005, FNS’ impaired loans amounted to THB328.4m or 12.7% of total loans, down from THB345.4m or 15.4% at end-2004. However, the group’s loan loss reserves appeared low; at THB98.8m, reserves were equivalent to 30.1% of impaired loans, implying some risk of further provisioning. Fitch also notes that FNS’ securities subsidiary is also exposed to margin lending-related risks and equity underwriting risks. FNS’s market risk exposure also appears high, owing to its heavy reliance on investments and proprietary trading.
FNS’s current ratio of 1.2x at end-September 2005 suggests that the firm has adequate liquidity to meet short-term debt obligations. The group has unused credit lines of about THB2 billion from financial institutions. The FMO also provides a partial guarantee facility of THB1bn to FNS in case the firm needs to mobilise funds via the issuance of debt instruments.
At end-September 2005, FNS’s equity/asset ratio stood at 32%, which appears adequate for an investment bank. Nonetheless, FNS lacks the support of a strong financial institutional shareholder, making it more vulnerable to event risks or periods of market volatility. Thai property developer, Natural Park is FNS’ largest shareholder, but it is financially weak and has announced that it intends to sell its stake in FNS.
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.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
Contact:
Chaiyapat Paitoon, Vincent Milton,
Bangkok +662 655 4762/4759;
David Marshall, Hong Kong +852 2263 9963. End.