Bangkok--22 Jan--Fitch Ratings (Thailand)
Fitch Ratings (Thailand) has today affirmed Finansa’s (“FNS”) National Long-term rating at ‘BBB(tha)’ and National Short-term rating at ‘F3(tha)’. The agency also affirmed the 'F2(tha)' National Short-term rating on FNS’s THB400 million 270-day Bills of Exchange, which is 50% guaranteed by the Netherlands Development Finance Company ("FMO").
The ratings of FNS reflect the firm’s financial holding company structure, its revenue diversification, and its adequate capital and liquidity positions. However, the ratings also take into account FNS’s 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. 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 (“NPARK”), currently FNS’s largest shareholder, is financially weak and has indicated that it intends to sell its stake.
In May 2006, Fitch revised FNS’ Outlook to Negative from Stable following its Q106 results, which were worse than projected due to an unexpected provisioning for investments and the departure of FNS’s retail brokerage team. The hiring of a replacement team, new investment flows and FNS’s plan to improve risk controls and disclosure should see performance stabilise, although market conditions remain weak.
FNS’s net income fell to THB102.4m in 2005 from THB477.6m the previous year, due to declines in revenue from brokerage, investments, finance and investment banking businesses, as well as the booking of some start-up costs of its new local asset management subsidiary. In the first nine months of 2006 (“9M06”), FNS reported a net loss of THB217.5m, a sharp deterioration from a net profit of THB161.5m in 9M05, due to impairment losses, losses from its finance subsidiary and a decline in profit contribution from its brokerage business.
The agency notes that credit risk stems mainly from FNS’s finance businesses and corporate bond investments. At end-September 2006, FNS’s impaired loans amounted to THB473.5m or 15.7% of total loans, up from THB273.1m (12.7% of total loans) at end-2005 as a result of the Bank of Thailand’s (“BOT”) stricter qualitative classification criteria. Loan loss reserves appear low at THB106.2m, equivalent to 22.4% of impaired loans, implying some risk of further provisioning. FNS’s 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.
At end-September 2006, FNS’s current ratio of 1.2x suggests the firm has adequate liquidity to meet short-term debt obligations. The group has unused credit lines of about THB5 billion. FMO also provides a partial guarantee facility of THB1bn to FNS, of which THB800m has not been utilised, in case the firm needs to mobilise funds via the issuance of debt instruments. At end-September 2006, FNS’s equity/asset ratio stood at 28.6%, which appears adequate for an investment bank.
Established in 1991 by former executives of Chase Manhattan (Thailand), FNS provides a range of financial services, including fund management, brokerage, investment banking and commercial lending, primarily through four wholly-owned subsidiaries. Current major shareholders include NPARK (18%) and senior management (approximately 30%).
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.
Contacts: Chaiyapat Paitoon, Vincent Milton, Bangkok +662 655 4762/4759; David Marshall, Hong Kong +852 2263 9963.