OREANDA-NEWS. Fitch Ratings (Thailand) has affirmed Phatra Securities Public Company Limited's (Phatra) National Long-Term Rating at 'A-(tha)' with a Stable Outlook and National Short-Term Rating at 'F2(tha)'.

KEY RATING DRIVERS

Phatra's ratings reflect its sound domestic brokerage franchise for institutional and high-net-worth clients, and its strong investment banking presence. Phatra has greater revenue diversification compared with other companies in the sector, which has supported its consistent performance through volatile periods in the Thai capital markets. Fitch believes the company will be able to maintain its performance, which is among the strongest in the industry, although pressure on profitability is likely to increase over the medium term due to intensifying competition.

The ratings also take into account Phatra's increasing exposure to market risks. At the moment, these risks are mitigated by its hedging strategies and satisfactory risk management. Phatra's rise gross leverage (asset/equity ratio) to 4.9x at end-June 2015 from 1.9x at end-2011 was largely driven by its increasing investment hedging activities (via stock borrowing and lending (SBL) transactions, which tend to be volatile), rather than purely by an increase in debt obligations. Net adjusted leverage ratio, which excludes SBL-related transactions, rose less sharply to 2.8x at end-June 2015 from the 2011-2014 average of 2.1x.

Phatra benefits from some ordinary support from its parent company, Kiatnakin Bank Public Company Limited (KK), such as business referrals, resources, and funding. However, Phatra's rating is driven predominantly by its standalone strengths.

RATING SENSITIVITIES

Phatra's ratings are among the highest for Fitch-rated standalone securities firms in Thailand. Rating upside is limited unless Phatra can improve its market position while sustaining its earnings quality. Also, proven management of market risk through cycles and significantly stronger capital buffers could positively affect the ratings.

Persistently higher leverage (gross leverage and net adjusted leverage) relative to industry peers, a substantial decline in liquidity (including through much higher use of short-term finance), or a significant and sustained rise in investment risk appetite would likely lead to negative rating action.

Evidence of greater reliance on KK for support, particularly related to income generation and funding, may result in a reassessment of the ratings as Phatra would be operating more like a subsidiary. In this regard, KK's financial strength would become a major ratings driver for Phatra's ratings. However, Fitch does not expect this to occur in the near term.