fitch rating sec's sme seminar march 2013.ppt · corporate ratings 13 march 2013. agenda...

Rating Corporates

Lertchai Kochareonrattanakul, Senior Director

Corporate Ratings

13 March 2013

Agenda

Ratings

Preparation

Rating Process

Fitch Coverage

Credit Enhancement

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www.fitchratings.com

Credit Ratings and Roles

• What is credit rating?

• An opinion on the relative ability of an entity to meet financial commitments

such as interest or repayment of principal on a timely basis

• Opinion relating to an entity’s operational and financial strengths and risks

• Usage and limitation of credit ratings

• Credit ratings do not directly address any risk other than credit risk, not

deal with the risk of a market value loss due to change in interest rates,

liquidity and other market considerations.

• And not constitute recommendations to buy, sell, or hold any security, nor

comment on the market price of any security.

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International Ratings

• Global scale – internationally comparable assessment

• Foreign and local currency ratings

• Measure the likelihood of repayment

• For International ratings, the cut-off point between “investment

grade” and “non-investment grade” falls between BBB- and BB+

• Thailand’s Sovereign Ratings

Long Term Short Term Outlook

International Foreign Currency IDR BBB+ F2 Stable

International Local Currency IDR A- Stable

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National Ratings

• Mainly used in emerging markets with sub or low investment grade

sovereign ratings

• For better credit differentiation than is possible on international scale,

where ratings tend to bunch around the often low sovereign rating

• An assessment of credit quality relative to the rating of the lowest

credit risk in a country

• Design to indicate relative creditworthiness only, with no specific

default probability implied

• Not internationally comparable

• Special identifier for each country, i.e. AAA(tha) for National Ratings

in Thailand

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Rating Issuer and Debt Instruments

• Issuer Rating

• Assessment of an issuer’s relative vulnerability to default on financial

obligations

• Represent by senior unsecured rating in the absence of significant secured

debt

• Issue Rating

• Combination of an ability and timeliness of the issuer to repay debts and a

recovery expectation

• Potential recovery takes into account relative subordination within an

issuer’s capital structure, collateral value

• Recovery potential becomes more relevant at the lower end of credit curve

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Rating Methodology for Corporates

• Master Corporate Rating Methodology

• Sector Credit Factor (SCF) – applied to specific sectors

• Comparative analysis of the strength of business and financial risk

profile relative to that of others in the industry or rating category peer

group

• Operating history and financial data

• Forecasts of future performance

• Potential changes in operating environment or financial strategy

• Weighting between individual and aggregate qualitative and

quantitative factors over time

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Key Rating Factors

Qualitative and Quantitative Factors:

• Industry risk

• Operating environment

• Company profile

• Management strategy and corporate governance

• Group structure

• Financial profile

• Earnings and cash flow

• Capital structure

• Financial flexibility

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Basic Information

• Company profile

• Shareholders, details of key subsidiary and associate, details of

management team, historic development of the business, organization chart

• Operation

• Business line

• Production capacity and cost, product pricing

• Market share, key suppliers, key customers, key competitors

• Key regulatory and tax issues

• Investments and capex plan

• Financial data

• Annual reports, quarterly financial statements, projections, revenue and cost

break-down, debt structure, credit line facilities

•

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Engagement letter signing Preliminary

analysis Management meeting & Site visit

Receipt of all required information

Submission of First draft report

Management comments on report

Holding credit committee & Rating notification

Ongoing surveillance

Annual major review Major development

Week 1 Week 2

Week 3-4

Week 5Week 6

Ratings:

a) Monitored Public / Private

b) Point-in-time

10 Days

Rating Process

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Rating Watch and Outlook

• Rating Watch: indicate a heightened probability of a rating change

and the likely direction of such a change, typically “event-driven”,

resolved over a relatively short period

• Rating Outlook: indicate the direction a rating is likely to move over a

one to two-year period, reflecting the credit profile not yet reach the

level that would trigger a rating action

• Rating Guidelines

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Fitch’s Coverage – Strong Local Presence

• Fitch rates over 20 major corporates which include large issuers such as PTT

and its subsidiaries as well as Siam Cement Group, AIS and DTAC. Fitch has

also assigned ratings to the majority of Thai financial institutions, insurance,

bond funds, asset managers and all structured finance transactions.

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Fitch’s Ratings for Bond Issuance

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Proactive Investor Relations & Strong Reputation

• Proactive investor relations

• Over 8,300 institution investors, including top 100 global investors

currently subscribe to Fitch’s research and ratings.

• Proactive investor development program in Thailand as well as in U.S. and

Europe increases the visibility and understanding of issuers with major

institutional investors, risk managers and other counterparties.

• Strong reputation

• Fitch’s rating actions and comments are captured by major media outlets in

Thailand and newswires.

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Proactive Investor Relations & Strong Reputation

Top institutional investors in Fitch’s distribution list : Thailand

Top state FIs

Social Securities Office

Government Pension Fund

Government Saving Bank

Top asset management

SCB Asset Management

Kasikorn Asset Management

Krung Thai Asset Management

BBL Asset Management

TMB Asset Management

Top insurance companies

AIA (Thailand)

Thai Life Insurance

Muang Thai Life Assurance

Bangkok Life Assurance

SCB Life Assurance

Allianz Ayudhya (Thailand)

Top commercial banks

Bangkok Bank

Krung Thai Bank

Kasikornbank

Siam Commercial Bank

Bank of Ayudhya

Thai Military Bank

Top securities companies

Maybank Kim Eng Securities (Thailand)

Asia Plus Securities

Phatra Securities

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Fitch’s Ratings Distribution

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Key Credit Issues for SME

• Relatively small, more vulnerable to changes in operating

environment

• Reporting

• Management strategy and corporate governance

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Quality of the Corporate Governance

• Board effectiveness

• Management effectiveness

• Transparency of financial information

• Related-party transactions

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Credit Enhancement – Enhancing Recoveries

• Collateral

• Guarantee

• Full

• Partial

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Criteria for Partial-Credit Guarantee

• Issuer credit quality

• Guarantee structure

• Subordinated, Pari Passu, or senior

• Subrogation rights

• Guarantee provider

• Recovery analysis

• Valuation of the guarantee

• Guarantee amount

• Guarantee structure

• PV of cash flow received

• Guarantee provider rating and correlation

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Vincent Milton, Managing Director

Corporates

Lertchai Kochareonrattanakul

Obboon Thirachit

Somruedee Chaiworarat

Pimrumpai Panyarachun

Ekapan Prompraphant

Structured Finance

Orawan Karoonkornsakul

Financial Institutions

Chutimas Sivamard

Patchara Sarayudh

Piyamas Chaihetphon

Administration

Apinya Tantimedh Business and Relationship Management

Somporn Pitakamnuay Account

Rasawan Wangkanondh Administration

Local Team

New York One State Street Plaza New York, NY 10004

London 30 North Colonnade Canary WharfLondon E14 5GN

BangkokPark Ventures 17th Fl., 57 Wireless Road, Lumpini, Patumwan, Bangkok 10330

fitch rating sec's sme seminar march 2013.ppt · corporate ratings 13 march 2013. agenda...

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