Bangkok--18 May--Fitch Ratings
Fitch Ratings (Thailand) has today revised the Outlook on Finansa Public Company Limited’s (“FNS”) National Long-term rating to Negative from Stable, and affirmed the rating at ‘BBB(tha)’. At the same time, the agency affirmed FNS’ National Short-term rating at ‘F3(tha)’ and 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").
Fitch’s Outlook revision and ratings affirmation follows the release of FNS’s Q106 results, which were significantly worse than projected due mainly to an unexpected provisioning for investments and the departure of its retail brokerage team. FNS reported a net loss of THB238.3 million in Q106, a sharp drop from its net profit of THB58.7m in Q105. This is largely due to significant losses on impairment of its investments and losses from its securities subsidiary.
The majority of losses on impairment of FNS’s investments stemmed from non-recurring net provisions of THB107m for impairment in the Siam Investment Fund (“SIF”), in which FNS has a 49.5% investment through its wholly-owned subsidiary, Finansa Fund Management (“FFM”). Such provisions were made following the decision by the fund’s shareholders to not extend the maturity of SIF to 2008 as previously expected by FNS, and to liquidate the fund by end-2006. Losses from its securities subsidiary resulted from the departure of much of FNS’s retail brokerage marketing team. This led to a sharp drop in FNS’s brokerage market share to 0.7% in Q106 from 2.6% in Q105, and hence a sharp reduction in brokerage revenue to THB42m from THB158.5m. Thailand’s continuing political turmoil also led to a reduction in investment banking revenue. Fitch notes that further provisioning risks remain, given its low reserve coverage and its THB90m exposure to Picnic Corporation.
The agency points out that mitigating the downside risks to FNS’ performance is the recruitment of a new retail brokerage team, which is expected to see its market share improve in H206, new investment flows into its Siam Investment Fund III (“SIF III”), as well as the firm’s plan to improve risk controls and disclosure. If these factors materialise and the operating environment improves in the next twelve months, the Outlook of FNS’s ratings could be revised back to Stable.
The current 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 risks, and its dependence on volatile brokerage earnings, investments and proprietary trading.
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.