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SECURITIES FINANCING
POST REPORTERS
TSFC Securities had its credit rating cut by two notches yesterday as Tris Rating warned that the sharp decline in the stock market had affected its equity investment and margin loan portfolio.
Tris cut the credit rating of TSFC Securities to BBB- from A with a negative outlook. The agency said the outlook was due to the severe deterioration of TSFC's capital base and its strained financial flexibility, and that a ''substantial'' downgrade was possible unless a redhcapitalisation plan was developed.
''If TSFC's financial performance is further hit by an unfavourable environment of financial or capital markets, the rating will be lowered,'' Tris said in a statement.
TSFC Securities, the only company in the country licensed to provide securities financing, loans against pledged securities and securities repurchase agreements, had 21.8 billion baht in assets as of June: 36% represented margin loans, 34% fixed income investments, 25% unit trusts and 5% other assets.
Exposure to equity represented 48% of total unit trust investments, or 1.6 times shareholders' equity.
Tris said the decline in the SET index of 54% in October led to a rapid decline in the value of margin loan collateral, forcing TSFC to set high provisions for doubtful accounts.
The mark-to-market value of TSFC's unit trust portfolio has also hurt the company's net worth. As of June 2008, TSFC booked unrealised losses on securities investment of 525 million baht, resulting in shareholders equity dropping to 1.56 billion from 2.21 billion at the end of 2007.
Doubtful loans to total loans rose to 3.1% at the end of June from 2.52% at the end of 2007. TSFC posted profits of 143 million baht for the first half of the year, including 71 million set aside as additional provisions against doubtful margin loans.
Tris said considering the market decline in October, TSFC was expected to post a net loss for the second half of the year due to higher provisioning expenses and realised losses from the sale of its securities investments.
''In addition to realised losses on the profit and loss statement, shareholders' equity will be reduced to a minimal level or may be negative due to a significant amount of unrealised losses on unit trust investments,'' Tris said.
Thirachai Phuvanatnaranubala, the secretary-general of the Securities and Exchange Commission, said TSFC should be considered a special case from other securities companies. ''The decline in the stock market over the past several months has caused large losses for TSFC's investment portfolio, resulting in its capital funds turning negative,'' he said.
''The SEC has ordered the company to address the situation, and the company is in talks with its shareholders, including the Finance Ministry, about a recapidhtalisation.''
The TSFC, which was founded in 1998 to provide margin loans to brokers and investors, is 10% held by the Finance Ministry and counts the Stock Exchange of Thailand, commercial banks and other securities brokers as other shareholders.
''Margin loan customers who have borrowed from the TSFC do not have to be concerned. There will not be forced selling to repay any debt, and operations will be made in compliance with the conditions stipulated under existing borrowing agreements,'' Mr Thirachai said.
''If any customer wishes to transfer their margin account to another broker they can do so. I would like to stress to margin borrowers that they do not have to be concerned.''
Investors trading on margin borrow funds at a set interest rate with stocks pledged as collateral against the loans. The TSFC has the right to force a borrower to pledge additional collateral or even force-sell the pledged stocks if market prices decline.
Securities regulators insist that margin lending represents only a small proportion of total turnover on the exchange, and that losses to date due not pose a significant risk to local brokers or the securities system.
Mr Thirachai said investments by local brokers in listed stocks amounted to just 6.7 billion baht, or 13% of the total capital funds of local brokers.
''The problems that have arisen due to the global crisis have affected only TSFC. There has been no other impact to the rest of the securities system,'' he said.
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