Bangkok--29 Jul--Fitch Ratings
Fitch Ratings (Thailand) has today affirmed Finansa Public Company Limited’s (FNS) National Long-term rating at ‘BBB(tha)’ with a Stable Outlook and its National Short-term rating at ‘F3(tha)’.
FNS’ ratings reflect its weak financial performance in the past few years and ongoing concerns regarding liquidity risks. These concerns are mitigated to some extent by the Bangkok-based financial services company’s strong capital buffer and reduced exposure to riskier investments. The ratings are also constrained by the lack of a strong institutional shareholder. While a significant new investment in a property leasing business may provide a stable income stream, any significant increase in leverage or increased reliance on short-term funding could negatively impact the rating.
FNS completed a strategic reorganisation in 2009 that included a three-way merger of its securities brokerage business, a scale back of its finance business, closure of some of its offshore fund operations, and investment in a new property leasing business.
The company reported a consolidated net loss of THB453m in 2009, compared with a net loss of THB615m reported in 2008, due mainly to lower revenue and one-off expenses relating to the restructuring of its finance business. In Q110, FNS reported a smaller net loss of THB21m (Q109: THB161m net loss) on the back of significantly lower expenses. However, overall revenue continued to decline due to weaker revenue from its finance and securities brokerage businesses after the group restructuring.
Most of FNS’s funding is short-term, including bills of exchange issued to financial institutions and high-net-worth clients, and loans from commercial banks. All of its deposits (mostly promissory notes) at its finance operation had been returned to the depositors, as the company returned its finance licence to the Ministry of Finance in 2009. This helped to improve its liquidity position, with the current ratio (current assets to current liabilities) rising gradually to 1.4x and liquid assets to short-term debt ratio improving to 114.9% at end-March 2010 from 86.7% at end-2008.
FNS’s equity has significantly declined due to continuing losses since 2007. Retained losses amounted to THB391m at end-March 2010. Nonetheless, the company’s capital position appears strong, with equity/asset ratio strengthened to 68.3% at end-March 2010 from 34.3% at end-2008 due mainly to a larger contraction of assets. However, in the longer-term, FNS’s lack of a strong financial institutional shareholder makes it more vulnerable to event and liquidity risks during periods of market volatility, and is, as such, a constraint on the ratings.
Although profitability remains poor, the Outlook is Stable due to FNS’s strong capital buffer. However, downside risks could arise if its performance weakens further, and if leverage and risks from its new property leasing business increase.
Applicable criteria available on Fitch’s website at www.fitchratings.com: “Global Financial Institutions Criteria”, dated December 29, 2009; “Rating Criteria for Securities Firms”, dated December 29, 2009; “Bank Holding Companies”, dated December 29, 2009; and “National Rating-Methodology Update”, dated December 18, 2006.
Contacts: Narumol Charnchanavivat, Vincent Milton, Bangkok, +662 655 4763/4759.