Fitch takes CIMBS down a notch as institutional support fades
Fitch Ratings has downgraded CIMB Securities Thailand Co’s (CIMBS’s) national long-term rating to AA-(tha) from AA(tha) and placed all of its ratings on ratings watch negative (RWN).
Fitch said it rates CIMBS based on institutional support from Malaysia’s CIMB Group. The downgrade reflects the view that there has been a decline in CIMB Group’s propensity to support CIMBS, as the group has clear plans to reduce its stake in its securities businesses, the international credit rating agency said.
CIMB Group has announced it will sell a 50% stake in CIMB Securities International Pte Ltd, CIMBS’s direct parent, to China Galaxy International Holdings. Fitch said these plans will have a negative impact on the role and integration of CIMBS within the CIMB Group over the medium term.
Fitch also placed CIMBS on RWN because there may be a further reduction in CIMB Group’s propensity to support CIMBS after the transaction is finalised.
The agency believes CIMB Group is likely to reduce its support as the sale agreement provides for the unloading of a further 25% stake to CGIH.
Fitch said it will also assess the level of institutional support that CIMBS may receive from its new shareholder CGIH. Fitch said this level of support, if any, is unlikely to be greater than that previously granted by CIMB Group.
One possible outcome of the review is that under the new joint-venture shareholding structure, there is no clear support propensity from either of the parents. The ratings agency, therefore, said that CIMBS should be assessed on a stand-alone basis. Should this happen, Fitch said CIMBS’s national long-term rating could fall by another three notches or more.
Fitch said it expects to resolve the RWN on CIMBS within the next six months, once the agency gets clarity on the level of institutional support for CIMBS. CIMBS’s ratings are sensitive to changes in CIMB Group’s credit profile and propensity to extend support. The ratings may also be impacted by the agency’s assessment of CGIH’s propensity to extend extraordinary support to CIMBS.
At the same time, the agency affirmed the ratings on foreign financial institutions’ three subsidiaries: United Overseas Bank Thai (UOBT), CIMB Thai Bank (CIMBT) and Maybank Kim Eng Securities Thailand Plc (MBKET).
Fitch said these three entities would receive extraordinary support from their parents: United Overseas Bank Limited (UOB; AA-/stable), CIMB Bank Berhad (CIMB) and Malayan Banking Berhad (Maybank; A-/stable). All three parents have closely integrated the Thai firms with their respective groups, and hold majority stakes in and exercise management control of the Thai firms. The parents allow the Thai entities to share their brands, and remain supportive of the Thai subsidiaries financially and operationally, said Fitch.
UOBT’s foreign-currency issuer default rating of A- is capped by Thailand’s country ceiling of A-.
Fitch rates the Thai-baht denominated senior debt of UOBT and CIMBT at the same level as the entities’ national ratings, reflecting the unsecured and unsubordinated nature of these instruments.
CIMBT’s unconditional and irrevocable guarantee for CIMBT Auto’s bond underpins the instrument’s AA(tha) rating, the agency said. CIMBT directly owns 99.99% of CIMBT Auto.
Fitch also affirmed the rating on the guaranteed bond issued by CIMB Thai Auto Co Ltd (CIMBT Auto, formerly known as Center Auto Lease Company Ltd).
The agency said UOBT’s viability rating (VR) reflects its relatively small franchise in the Thai market, and an earnings capacity that has underperformed that of larger banks. UOBT’s VR also reflects its satisfactory capitalisation for its rating level, its consistent performance, as well as ordinary support from UOB (for example, in terms of management and marketing).
Fitch rated UOBT’s Basel III Tier 2 subordinated debt one notch below the bank’s national long-term rating. The features of the notes are in line with other instruments of this type issued locally in Thailand — the notes have no going-concern loss absorption features, and there is no provision for a mandatory full write-down.
Fitch notched MBKET’s subordinated debt one level below the anchor rating of AA+(tha), MBKET’s national long-term rating. Subordinated noteholders rank after senior creditors in the priority of claims. The notching reflects the notes’ lack of going-concern loss-absorption and their higher loss-severity risks compared with senior unsecured instruments due to the notes’ subordination to the latter.
Any changes in UOB’s long-term foreigncurrency IDR are unlikely to affect UOBT’s IDR unless the parent was downgraded by more than a category, as it is currently capped by Thailand’s country ceiling of A-, said Fitch. A change in Thailand’s country ceiling is likely to lead to similar rating action on UOBT’s long-term foreign currency IDR, the agency said, adding UOBT’s national ratings and support rating are already the highest on each scale, so no upgrades are possible.
Fitch also said it might downgrade the national long-term ratings of CIMBT and MBKET if their parents’ credit profiles were to deteriorate or if the parents were to reduce their propensity to extend extraordinary support. This could happen if the parents materially reduced their shareholding or withheld commitments to supporting their Thai subsidiaries financially, said Fitch, adding that it deemed those scenarios improbable.
The senior debt ratings of UOBT and CIMBT are sensitive to changes in their national ratings.
Fitch said the rating of CIMBT Auto’s guaranteed bond would be directly affected by changes in CIMBT’s national long-term rating. UOBT’s VR could see upside if the bank shows that it can sustain its improved profitability core metrics, while maintaining a consistent risk appetite and sound capital buffers.