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TEXT-Fitch Downgrades 1 Taiwan Securities Company; Affirms 8 Others
June 5, 2012 / 3:47 AM / 5 years ago

TEXT-Fitch Downgrades 1 Taiwan Securities Company; Affirms 8 Others

(The following was released by the rating agency)

June 04 (Fitch) Fitch Ratings has downgraded one Taiwanese small- to medium-sized securities company, affirmed eight others and revised one Rating Outlook to Negative from Stable.

Horizon Securities Co., Ltd. (Horizon) was downgraded to National Long-Term ‘BBB(twn)’ from ‘BBB+(twn)’ and to National Short-Term ‘F3(twn)’ from ‘F2(twn)'. At the same time, the agency has revised the Rating Outlook on the National Long-Term Rating of Pacific Securities Corporation (Pacific) to Negative from Stable. The companies affirmed are Oriental Securities Corporation (Oriental), Concord Securities Corporation (Concord), Ta Chong Securities Co., Ltd. (Ta Chong), Ta Ching Securities Co., Ltd. (Ta Ching), Tachan Securities Co., Ltd (Tachan), Reliance Securities Co., Ltd. (Reliance), Pacific, and Primasia Securities Co., Ltd. (Taiwan) (Primasia). The Outlooks are Stable except for Pacific.

A full rating breakdown is provided below. The downgrade of Horizon’s ratings reflects its high volatility in earnings relative to peers due to its limited scale in the core brokerage business and elevated market risk exposures through proprietary trading. The company’s recently announced property disposal will benefit its capital and liquidity position. Nonetheless, its balance sheet would still be weaker than that of ‘BBB+(twn)'-rated domestic peers.

Fitch does not expect Horizon’s capitalisation and liquidity to deteriorate materially in the near- to medium-term, and thus a further downgrade is unlikely. The revised Outlook on Pacific to Negative reflects Fitch’s reassessment that a significantly improved business model is unlikely in the near-term. Negative rating action is likely to result if over the next two years, the company is unable to demonstrate a capability to generate sustainable profits. Any notable increase in risk-taking behaviour or an unexpected large trading loss will be a downgrade trigger.

The ratings of the affirmed securities companies reflect their ability to keep their risk profiles in check despite heightened market volatility and depressed trading volumes. Ongoing weak equity market sentiment is likely to result in losses in brokerage operations due to a sharp decline in commissions and likely losses in trading. Nonetheless, sizeable losses are unlikely given low-to-moderate market risk exposures at these companies.

Liquidity risk is manageable, despite their reliance on wholesale funding, due to flexible liquidity arrangements and low risk of asset/liability duration mismatch. Moreover, a strong capital base should provide sufficient buffer against adverse business conditions. Fitch views that rating upside potential of the affirmed entities is limited, unless companies can demonstrate a sustained improvement in earnings quality, aided by the benefits of enhanced franchise value. Conversely, any sharp increase in risk appetite and/or unexpected large trading losses resulting in material deterioration in capital may trigger a negative rating action.

The rating actions are as follows:

Oriental: Long-Term Foreign Currency Issuer Default Rating (IDR) affirmed at ‘BBB-'; Outlook Stable Short-Term Foreign currency IDR affirmed at ‘F3’ National Long-Term rating affirmed at ‘A(twn)'; Outlook Stable National Short-Term rating affirmed at ‘F1(twn)’ Concord: Long-Term Foreign Currency IDR affirmed at ‘BB+'; Outlook Stable Short-Term Foreign Currency IDR affirmed at ‘B’ National Long-Term rating affirmed at ‘A-(twn)'; Outlook Stable National Short-Term rating affirmed at ‘F2(twn)’ Horizon: National Long-Term rating downgraded to ‘BBB(twn)’ from ‘BBB+(twn)'; Outlook Stable National Short-Term rating downgraded to ‘F3(twn)’ from ‘F2(twn)’ Ta Chong: National Long-Term rating affirmed at ‘BBB+(twn)'; Outlook Stable National Short-Term rating affirmed at ‘F2(twn)’ Ta Ching: National Long-Term rating affirmed at ‘BBB+(twn)'; Outlook Stable National Short-Term rating affirmed at ‘F2(twn)’ Tachan: Long-Term Foreign Currency IDR affirmed at ‘BB’; Outlook Stable Short-Term Foreign Currency IDR affirmed at ‘B’ National Long-Term rating affirmed at ‘BBB+(twn)'; Outlook Stable National Short-Term rating affirmed at ‘F2(twn)’ Reliance: National Long-Term rating affirmed at ‘BBB(twn)'; Outlook Stable National Short-Term rating affirmed at ‘F3(twn)’ Pacific: National Long-Term rating affirmed at ‘BBB-(twn)'; Outlook revised to Negative from Stable National Short-Term rating affirmed at ‘F3(twn)’ Primasia: National Long-Term rating affirmed at ‘BB(twn)'; Outlook Stable National Short-Term rating affirmed at ‘B(twn)'

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