Bangkok--12 Jun--Fitch Ratings
Fitch Ratings (Thailand) Limited has today assigned TISCO Financial Group Public Company Limited (TISCO) National Long- and Short-term ratings of ‘A-(tha)’ and ‘F2(tha)’, respectively, with a Stable Outlook.
The ratings reflect TISCO’s holding company status, which is structurally subordinated to its banking subsidiary - TISCO Bank Public Company Limited (TISCOB, ‘A(tha)’/’F1(tha)’/Stable) — as TISCO will have to rely mainly on dividend payment from TISCOB. The Stable Outlook is based on the expected maintenance of leverage and liquidity at both the holding and group level. Major changes to TISCO’s investment, leverage and business strategy as well as ratings of TISCOB could also affect its ratings. Given TISCO’s status as a holding company and its lack of a strong institutional shareholder, external support should not be relied upon.
For Q109, TISCO reported an unconsolidated net profit of THB152m. Most of its income is derived from service fees charged to its subsidiaries for administrative functions. The company incurred THB31m interest expense in Q109 on THB3.5bn of short-term borrowings, mostly from TISCOB. TISCO is expected to repay THB500m in Q209 using the proceeds from a capital reduction at recently acquired Primus Leasing Company Limited (Primus). A dividend payout from TISCOB of THB0.6bn will be partially used to further reduce TISCO’s debt in Q209, although most of the dividend will be paid out as dividend to TISCO’s shareholders.
While TISCO plans to partly refinance its short-term loans via the issuance of short-term bills of exchange given the latter’s cheaper funding cost, TISCOB will continue to be the main provider of liquidity to the holding company, although the bank would be subject to the intra-group lending limit which is currently capped at THB3.7bn. That said, TISCO’s reliance on the bank for liquidity support and short-term nature of the holding company’s liability structure is of concern.
At the bank level, TISCOB’s reliance on large depositors and its short liability duration is also a concern, although the bank’s duration gap has improved after the issuance of THB2bn subordinated debt in Q109 and is expected to further improve after the issuance of another THB2bn. TISCOB’s loans to deposits and short-term funding ratio also improved to 98.3% at end-2008 from 108.9% at end-2007 as deposits increased sharply in 2008. Moreover, the full deposit protection should help mitigate liquidity risk.
TISCO’s debt arose mainly due to the transfer of subsidiaries from TISCOB to TISCO. Nonetheless, the TISCO’s existing leverage ratio still appears low with debt to equity ratio of about 0.3x. Given management’s indication that TISCO has no plan to make further investment over the next three years, TISCO’s debt to equity ratio is expected to remain low. TISCO’s current double leverage ratio appears acceptable at 121%.
TISCO is the group holding company of TISCOB. Set up in 2008, it holds a 99.5% stake in TISCOB and 100% stakes in its securities, asset management and leasing subsidiaries.
Disclosure: TISCO Asset Management Company Limited (of which TISCO Financial Group PCL holds 100%) owns 10% of the shares in Fitch Ratings (Thailand) Limited. No shareholder, other than Fitch Ratings Limited of the UK, is involved in the day-to-day operation of, or credit rating reviews undertaken by, Fitch Ratings (Thailand) Limited.
Contacts: Patchara Sarayudh, Vincent Milton, Bangkok +662 655 4755.