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Fitch Ratings-Taipei/Hong Kong-27 November 2009: Fitch Ratings has today affirmed most of KGI Securities Co. Ltd.'s (KGI) ratings following the approval of KGI's merger with Taishin Securities Co., Ltd (TSC) from shareholders and regulatory authorities, as well as Fitch's assessment of KGI's changing credit profile based on the funding arrangements for the acquisition and the pro forma analysis for the merged entity. Simultaneously, Fitch has removed the Rating Watch Evolving (RWE) placed on the ratings on 19 May 2009. A detailed list of rating actions follows the end of this commentary.
The rating affirmation on KGI reflects Fitch's view that the company's overall credit profile, particularly with regards to capital adequacy and liquidity, would remain satisfactory after the merger. The TWD9.36bn rights issue through global depository receipts (29% of KGI's common equity at end-H109) completed by KGI in August 2009 largely offset the financial risk arising from an increase in financial leverage, including the sizeable goodwill (TWD8.5bn) attached to the acquisition. In addition, the combined entity has a reasonable surplus in net current assets, lending support to its adequate liquidity strength.
The acquisition would expand KGI's market share to over 8% in Taiwan (only second to the market leader Yuanta Securities Co. Ltd.'s 12%, rated 'BBB+'/Stable). The expanded economies of scale, if properly managed, could be beneficial to KGI's earning quality. The company has a good track record in raising its operating scope and scale, and improving its revenue diversity through several acquisitions locally and overseas in 1996 to 2004. Nevertheless, given the complexity involved in the merger of KGI and TSC, it may take time for KGI to materialise any favourable developments in the enlarged entity.
KGI, established in 1988, is one of the largest and most diversified (in terms of both geography and product mix) securities firms in Taiwan. It operates 35 branches in Taiwan and has securities operations in Hong Kong and Thailand. Upon completing the merger with TSC by end-2009, KGI's domestic branches will increase to 88.
KGI Securities Co. Ltd.
- Long-term foreign currency IDR affirmed at 'BBB', removed from RWE, assigned Stable Outlook;
- Short-term foreign currency IDR affirmed at 'F3', removed from RWE;
- National Long-term rating affirmed at 'A+(twn)', removed from RWE, assigned Stable Outlook;
- National Short-term rating affirmed at 'F1(twn)', removed from RWE;
- Individual rating affirmed at 'C', removed from RWE;
- Support rating affirmed at '5';
- Support Rating Floor affirmed at 'NF';
- Senior unsecured rating affirmed at 'A+(twn)', removed from RWE.
Contacts: Sophia Chen, Stephanie Liu, Jonathan Lee, Taipei, +886 2 8175 7600.
Note to editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(twn)' for National ratings in Taiwan. Specific letter grades are not therefore internationally comparable.
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