Bangkok--4 Aug--Fitch Ratings Fitch Ratings (Thailand) Limited has today placed the 'AAA(tha)' National ratings of the THB2.5bn Tranche A bonds No.1/2006 and THB2.5bn Tranche B bonds No. 2/2006 issued by Siam Panich SPV 1 Company Limited on Rating Watch Negative (RWN). The placing of the bonds on RWN reflects Fitch's concern on the operational problems arising from the transition of collection system to Siam Commercial Bank (SCB) from Siam Commercial Leasing (SCBL) since May 2008. While the agency has expected to see some operational setbacks during this transitional period, it is nevertheless concerned about the sharp increase in the portfolio's delinquency during May and June. Fitch notes that following the implementation of the new collection system in May 2008, the delinquency ratio (receivables with two months past due) increased to 7.6% in June 2008 from 5.4% in April 2008. Although monthly cash collection as a percentage of the beginning portfolio balance did not drop significantly, the three-month average delinquency ratio increased to 6.99% in June 2008, which was close to the trigger level for liquidity reserve of 7.00%; the transaction's early amortisation trigger on the three-month average delinquency ratio is set when the level exceeds 9.5%. According to SCBL, the main problem is the non-reconciliation of some accounts due to the different collection systems of SCBL and SCB, which led to a significant increase in manual reconciliation of payments resulting in higher backlog of non-recorded payments. These non-recorded payments have affected the borrowers' delinquency status and led to the rise in reported delinquency of the portfolio. In addition, the higher delinquency is partly attributable to the difference in both servicers' policies with regards to classifying payments from borrowers. Under SCB's system, cash received from borrowers will be used for the respective payments of fee (mainly penalty fee) and then scheduled installments, while SCBL's priority of applying payments was for scheduled installments followed by fee payments. As a result, borrowers whose amount due include fee and scheduled installments but whose paid amount covers only scheduled installments will be classified as delinquent by SCB. SCBL and SCB are in the process of solving these operational problems, which is scheduled to be completed by the third quarter of 2008. Fitch expects to resolve the RWN once the transition is completed and the collection system is operating efficiently again. Moreover, Fitch is also concerned about the future performance of the portfolio as a result of the deteriorating economic outlook, rising cost of living and high diesel prices. Given that about 64% of the receivables in the portfolio comprise pick-up vehicles, the performance of this segment is likely to be affected by high diesel prices and the recent drop in resale value of pick-ups. In addition, about 60% of the receivables in the portfolio are from customers in provinces and 25% of the total portfolio comprises used vehicles, which are in general more sensitive to economic conditions. These factors, in Fitch's view, could affect the rating outlook of the transaction, although at present, the transaction can still maintain the overcollateralisation ratio at 1.32x, the level provided at closing. This transaction is the first securitisation transaction of auto hire purchase receivables originated by SCBL. On the closing date, SCBL sold eligible receivables to the issuer; the purchase of receivables was 75.6% funded by the issuance of the bonds and the payment of the remainder 24.4% was deferred as credit enhancement of the transaction. Other risk mitigations that support the ratings of the transaction include the reserve fund, eligibility criteria and various performance triggers for early amortisation of the transaction. The receivables are now serviced by SCBL and SCB, while the Hongkong and Shanghai Banking Corporation (rated 'AA'/ 'F1+') is the back-up servicer. Contacts: Napachak Phasukavanich, Orawan Karoonkornsakul, Vincent Milton, Bangkok, Tel: +662 655 4755. Note to Editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with sub- or low-investment grade international sovereign 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. Media Relations: Shivani Sundralingam, Singapore, Tel: + 65 6796 7215.