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Tuesday, 18 September 2012 11:09

Fitch Affirms Thailand’s Corporate Strength Featured

USA-Fitch-Ratings

Fitch Ratings (Thailand) expects further stabilisation of the ratings of Thai corporate bond issuers, as gross domestic product is expected to show a growth rate of 5.5 per cent this year, driven by reconstruction spending, a rebound in manufacturing and government spending.

In its report "Fitch Thailand National Ratings 2011 Transition Study", the agency said that last year, 88 per cent of its corporate ratings were unchanged, with the remainder being more upgrades than downgrades.

In the year, three issuers were upgraded while one was downgraded. At end-2011, Fitch Thailand maintained 35 national ratings on corporate finance issuers and three on structured finance bonds.

The report further affirmed Thai companies' strengths, amid waves of bad news in the export sector.

Ratings Broadly Stabilised

Rating Stability: Overall, 88% of Fitch Thailand corporate national ratings remained unchanged in 2011, with the remainder associated more with positive than negative rating movements. Fitch Ratings expects the ratings to broadly stabilise through 2012 as the agency forecasts an economic recovery with 5.5% GDP growth – driven by reconstruction spending, a rebound in manufacturing production, and government spending. Nonetheless, the euro zone debt crisis and domestic political situation remain the challenging factors for the Thai economy.

One Downgrade, Three Upgrades: A single downgrade was recorded alongside three upgrades, contracting from figures in 2010 of two and eight, respectively. The only downgrade was an issuer in the telecommunications sector. The three upgrades included one issuer in the corporate sector (driven by an improved financial profile), and two issuers in the bank and non- bank financial institution sectors – supported by strong operational integration with there respective major shareholders. All structured finance bond ratings were affirmed.

No Defaults: There were no defaults among the Fitch Thailand National Rating entities, due in part to the limited issuance of lower-rated bonds, the relatively brief rating history, and the limited size of the Thai bond market.

Outlooks Remain Predominately Stable: At end-2011, 85% of corporate finance issuers carried a stable outlook. There were two corporate finance issuers with a negative outlook, and another two on positive outlook. One electronics product manufacturer was placed on Rating Watch Negative (RWN) due to the major flooding in late 2011. All structured finance bonds were on stable outlook.

Fitch Thailand has recorded no downgrades since the agency assigned its first National Rating to a structured finance transaction in 2002. Over the nine-year rating history, there were three rating upgrades, due mainly to a satisfactory portfolio performance and strong credit enhancement levels.

Fitch Thailand National Ratings Record no Defaults in 2011

There have been no defaults nor structured finance impairments within the Fitch Thailand National Ratings universe since the first rating assignment in 2001. This has been due to the relatively small size of the Thai bond market, a limited number of lower-rated issuers, and the absence of a severely distressed domestic credit environment since 2001. More data is needed to establish long-term default statistics in the domestic market, such as a greater and more diverse number of market participants, broader market coverage, and a longer data history covering at least one full economic cycle.

National Ratings

National scale ratings are an opinion of creditworthiness relative to the universe of issuers and issues within a single country. They are most commonly used in emerging-market countries with sub- or low-investment-grade sovereign ratings on the global scale. As credit opinion can be expressed across the full range of the scale, a national scale can enable greater differentiation within a market than the global scale – where ratings tend to bunch up around the sovereign rating, which is often low.

As credit risk is measured by ratings on both the global and national scales, they generally reflect the same key rating factors and the same criteria regardless of which scale is used. For the same reason, the relative ranking of various issuers and issues should be broadly consistent across both national and global scales.

Each national scale is differentiated by a unique subscript, as each rating could reflect vastly different risks from national scale to national scale. Like the global scale, national scale ratings range from  ̳AAA‘ for the strongest credits to  ̳D‘ for credits in default. The critical difference is that national scale ratings are assigned on the basis that the ―best credits‖ in the country are rated  ̳AAA‘, which is generally a much higher level than those same credits would be rated on the global scale. Therefore, the transition rates of the national and global scales may differ significantly.

The national scale rating of the country‘s sovereign, in local currency, is typically considered the ―best credit‖ – and rated  ̳AAA‘ on the national scale. This is due to the sovereign‘s powers of taxation, currency issue and foreign-exchange control over other entities active within the country. However, such powers are not limitless, and Fitch has established criteria by which entities may be assigned ratings above those of the sovereign. Therefore, the sovereign cannot automatically be assumed to be  ̳AAA‘ on a national scale.

As the objective of a national rating scale is to increase the number of notches available compared with the global rating scale, a notch on the global scale will be equivalent to a range of notches on the national scale.

With little published default history in these markets, formal, ex-post, national default probability curves cannot be derived from National Ratings — although this will change over time as more defaults are experienced and larger rated universes for national markets create more statistically appropriate data sets.

Credit Market Research

Corporate finance issuers with ratings outstanding at the beginning of 2003 constitute the 2003 static pool, or cohort, with the same being true for the subsequent 2004 and 2005 cohorts. Corporate finance issuers newly rated by Fitch Thailand in any given year are included in the following year‘s cohort. For example, the performance of ratings initiated in mid-2004 would be followed as part of the 2005 and future cohorts. Ratings withdrawn during the course of a year are excluded from subsequent cohorts because they are no longer active.

Structured finance cohorts are created by grouping tranche ratings instead of issuer ratings used for corporate finance, due to the non-applicability of issuer ratings for structured finance transactions. For structured finance, a tranche is defined as a class of securities or certificates within the same rating category. Similarly rated tranches from the same deal at issuance were treated as one observation. The tracking of rating performance of all structured finance tranches in each cohort is similar to that of corporate finance, with the inclusion of ratings outstanding at the beginning and end of each year.

Fitch‘s continuing data-enhancement efforts may result in slightly different statistics than in previously published studies. Therefore, this most recent study supersedes all previous versions. In addition, comparisons with earlier Fitch Thailand National Ratings transition and default studies should be viewed within the context of the differing methodologies, whether rating movements were analysed across the broad rating categories or at both modifier and flat levels.

Read 925 times Last modified on Tuesday, 18 September 2012 17:26
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