Bangkok--2 Apr--Fitch Ratings
Fitch Ratings (Thailand) has today placed Thanachart Capital’s (TCAP) National Long-term ‘A-(tha)’, Short-term ‘F2(tha)’ and Support ‘5’ ratings, as well as Thanachart Bank’s (TBANK) National Long-term ‘A-(tha)’, Short-term ‘F2(tha), Individual ‘D’ and Support ‘5’ ratings on Rating Watch Evolving. The rating actions follow TCAP Group’s announcement of its plan to sell a 24.99% stake in its main banking subsidiary, TBANK, to Canada’s Bank of Nova Scotia (Scotia, rated ‘AA-/F1+’ on an international scale) and the change to the group’s organisational structure by transferring the ownership of eight subsidiaries of TCAP (including its securities, life and non-life insurance, leasing and fund management subsidiaries) to TBANK. The majority stake of TBANK and distressed asset management subsidiaries of the group will continue to be held by TCAP, which will remain a holding company of the group.
On 20 March 2007, Fitch revised the ratings Outlook on TCAP and TBANK to Negative from Stable, reflecting the agency’s concerns on deteriorating profitability, weakening capital position as well as vulnerability to rising delinquencies and credit costs stemming from the group’s high growth strategy. TCAP and TBANK have been most aggressive in establishing their dominant market positions over the course of six years (average annual growth rate of 30.4%); however profitability appears the weakest among major auto hire purchase operators, due primarily to its aggressive pricing, rising funding costs and costs incurred from its large branch network expansion.
Scotia will spend THB7.1 billion through the purchase of 157.1 million existing shares from TCAP and another 276.3 million new shares, which will be issued on a private placement basis by TBANK in mid-2007, at THB16.37 apiece. The acquisition is expected to be completed by end-June 2007. Scotia expects to cease its Bangkok branch’s operation and sell the assets of this branch to TBANK to comply with the Bank of Thailand’s (BOT) “One Presence” policy. Scotia has an option to increase its stake in TBANK to 49% in the future, subject to the BoT’s approval. There will be three representatives from Scotia to sit on TBANK’s board of directors, which is composed of 10 directors in total.
The new capital of THB4.5bn from Scotia should help strengthen TBANK’s Tier 1 capital by about 30%. TCAP also has a plan to raise additional THB4bn of capital at a later stage. Future rating actions will be subject to further assessment of the impact on TBANK’s banking franchise, earnings, overall business strategy and risk management, as well as the extent to which this addresses Fitch’s concerns on the group’s profitability and asset quality. TCAP and TBANK could benefit from Scotia’s expertise in global transaction services, commercial and retail banking and wealth management, as well as technology and operations.
In Canada, Scotia offers a full array of banking and wealth management products. Global capital market operations and corporate banking are provided by Scotia Capital. Scotia is the most internationally diverse of Canada’s banks, with substantial Caribbean and Latin American operations and a significant Asian presence. In 2006, Scotia completed several small acquisitions including two Peruvian banks, Citibank’s consumer lending business in the Dominican Republic, National Bank of Greece (Canada), the mortgage business of Maple Financial (Canada), and Banco Interfin (Costa Rica). More recently, Scotia announced the acquisition of Travelers Leasing (Canadian auto leasing) and Dehring Bunting & Golding (Jamaican securities dealer). Scotia reported a net profit of CAD3.6bn in 2006, up from CAD3.2bn the previous year, thanks to strong growth in its international banking segment. Its capital ratios remain well above regulatory minimums and compared well globally, with Tier 1 capital ratio at 10.2% at end-2006.
Contact: Chaiyapat Paitoon, Vincent Milton, Bangkok +662 655 4762/4759; David Marshall, Hong Kong +852 2263 9963.