Bangkok--16 Jun--Fitch Ratings
Fitch Ratings (Thailand) has today affirmed Phatra Securities Public Company Limited’s (Phatra) National Long-term rating at ‘A-(tha)’ with a Stable Outlook, and its National Short-term rating at ‘F2(tha)’. This follows the announcement of its restructuring plan which may result in the transfer of Phatra’s investment business to a newly set-up holding company.
Phatra’s ratings continue to reflect its relatively strong investment banking and brokerage franchise for institutions and high net worth clients, as well as its solid capital, high liquidity, and debt free position. Although the restructuring could result in weaker profitability, due to the exclusion of income from investment business, this should be offset by a lower risk profile. On a consolidated basis, the group’s risk profile would remain unchanged.
Under the restructuring plan, a public limited company has been set up as a holding company (“Holding”) which will make a tender offer for Phatra’s shares with its newly issued shares at the swap ratio of 1:1. If the Holding acquires at least 75% of Phatra’s total outstanding shares, it will be listed on the Stock Exchange of Thailand (SET) in place of Phatra, which would be then delisted. However, the transaction would be terminated if the Holding acquires less than 75% of Phatra’s total outstanding shares. After the expected completion of the tender offer in Q410, Phatra’s investment portfolio (at end-2009: THB1.3bn or 22% of total assets) would be sold to the Holding, although this would be financed by a loan from Phatra.
The Stable Outlook reflects Phatra’s strong capital and liquidity positions, although profitability could fluctuate depending on market condition and trading volumes. Downside risks could stem from a prolonged weak economy and financial markets which could cause trading volumes to fall sharply. Significant diversification into riskier areas, such as derivatives and proprietary trading, could also raise the firm’s risk profile; though after the restructuring, risks related to long-term proprietary trading would be transferred to the Holding. Material changes in the terms of the agreement with its largest clients, such as Merrill Lynch (Banc of America Securities—Merrill Lynch (BAS-ML)) could also affect the ratings.
Phatra reported a net profit of THB425.9m (2008: THB207.3m), although this was mainly due to higher gains from investments as market conditions improved in 2009. Phatra’s ROA and ROE also improved to 8.5% and 13.7%, respectively, in 2009 (2008: 4.2% and 6.8%). However, Phatra’s core revenue from brokerage services (51% of total revenue) declined to THB700.2min 2009, down 22% yoy, due to lower business volume from foreign and local institutions. As a result, Phatra’s market share dropped to 4.6% in 2009 (ranking sixth in the industry) from 6% in 2008 (ranking second in the industry). In Q110, Phatra’s performance remained strong with a net profit of THB126.5m (Q109: 35.7m), mainly a result of significant improvements in trading volume and higher gains on investments.
Phatra’s largest liabilities were securities and derivatives business payables which stood at 23% of total assets at end-2009. Phatra’s Net Capital Ratio (NCR) was strong at 145% at end-2009, versus the Securities and Exchange Commission requirement of 7% for all securities firms in Thailand. Although, Phatra’s NCR could decline by about 50 percentage points due to loans to the Holding, the ratio should remain strong compared with the regulatory requirement. Phatra’s equity/assets ratio should not be affected, and at end-2009 the ratio stood at 58.4%.
Phatra has operated a securities business since 1974 and was de-merged into a separate entity in 1997. A group of key management currently owns a 36.7% stake through holding companies. Phatra is the leading investment banking house in Thailand.
Applicable criteria available on Fitch’s website at www.fitchratings.com: “Global Financial Institutions Ratings Criteria”, dated December 29, 2009; “Rating Criteria For Securities Firms”, dated December 30, 2009; and “National Ratings - Methodology Update”, dated December 18, 2006.
Contacts: Patchara Sarayudh, Vincent Milton, Bangkok, +662 655 4761/4759.