Fitch Ratings (Thailand) has confirmed the National Long-Term Rating and the National Short-Term Rating of the securities company. DAO (Thailand) or DAOLSEC in ?BB+(tha)? and?B(that)? respectively, at the same time cancel? Credit Monitoring Negative Trend? and give a stable credit forecast? to the long-term domestic credit rating
Confirmation of degree and termination? Watching Negative Credit? reflects Fitch’s view that the company’s capital increase will increase its ability to absorb losses. (loss absorption capacity) and help reduce the impact of negative risks on asset quality and performance if provisions increase in the future.
meanwhile Fitch has confirmed the National Long-Term Rating on DAOLSEC’s subordinated bonds at ?BB(tha)? and cancel? Negative Credit Status? The rating also extends to subordinated bonds that are in the process of being issued. The issue was given a credit rating by Fitch on December 14, 2022, with the offer price increasing to no more than Bt450 million.
Scoring Supporting Factors
High Capital Increase Support Scale: DAOLSEC proceeded with a capital increase of Bt400 million, funded on March 10, 2023 by its shareholder, DAO (Thailand) Co., Ltd. The capital increase results in a reduction in the tangible assets-to-tangible equity ratio from 5.9 times at the end of December 2022 to less than 4.0 times Large increase in capital to mitigate potential downside risks
Legal proceedings are ongoing: DAOLSEC is one of 11 securities companies affected by the November 2022 trading transaction More Returns Public Company Limited, which is in an abnormal situation Risk (exposure) in such transactions is in a significant amount for business debtors securities. involved in the commission of the offense temporarily And the prosecutor has filed a petition to the court against the assets of the parties involved The securities company affected has filed an application for the protection of the right to proceed with compensation for damages . But the judgment of the lawsuit may take some time.
Negative asset quality risk: DAOLSEC records accounts involved in default transactions as credit-deficient receivables. and some provisions have been made, but the likelihood of repayment remains very uncertain. and if the business cannot fully write off bad debts it may cause additional provision for impairment However, Fitch believes that the current level of equity will allow the company to increase provisions while maintaining a stable level of debt in line with the current rate.
Adequate business network: Fitch expects the capital increase will help the company maintain customer and investor confidence. The rating confirmation is based on the assumption that the impact of the above events will not cause significant damage to the DAOLSEC franchise in the long term, at the current level of 0.9%.
However, DOALSEC is still able to maintain its market position in other businesses such as Derivatives Brokerage and debenture underwriting business
Factors that may affect credit rating in the future
Factors that could have a negative impact or lead to a credit downgrade (Single factors or a combination of factors): DAOLSEC’s National Rating could be downgraded. If the company’s debt level declines significantly, for example, the tangible assets-to-tangible equity ratio remains stable at more than 5.5 times which may occur from an Increase in asset quality risk that requires for additional provision, or a significant decline in performance which is below expectations and which affects internal cash flow funding. Capital Generation) or if there is an event indicating that The company has weaknesses in terms of risk management compared to other operators or has long-term damage to the confidence of customers and creditors. This could lead to a downgrading of the credit rating.
Factors that could have a positive effect or lead to a credit rating upgrade In the near term, Fitch believes that there is a limited factor in a rating upgrade in the near term. This is due to the deterioration in the quality of assets and returns, as well as the entity’s risk controls. And there is also the risk that more reserves may need to be set aside
Fixed Income and Other Credit Rating: Supporting Factors for Rating The subordinated bond’s National Long-Term Rating is one part lower than DAOLSEC’s National Long-Term Rating, reflecting the higher loss severity risks of the subordinated bond. Priority bondholders will have lower claims than ordinary creditors, in accordance with Fitch’s Corporate Treatment and Notching Criteria.
Fitch has not downgraded the subbonds further. because it does not have the ability to support losses during business operations These sub-notes have features of absorbing operational business losses and no equity conversion features. The aim is to be included as part of the Company’s capital structure.
Fixed Income and Other Rates: Factors That Could Affect Future Rates
The National Long-Term Rating of the subbonds will change in accordance with the DAOLSEC National Long-Term Rating An upgrade to the DAOLSEC National Long-Term Rating is likely to affect the National Long-Term Rating of the subbonds.