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Fitch Ratings-Taipei/Hong Kong-27 January 2010: Fitch Ratings has today affirmed Taiwan's Reliance Securities Co., Ltd.'s (RSC) National Long-term rating at 'BBB-(twn)', with a Stable Outlook. A list of all rating actions is included at the end of this release.
RSC's ratings mainly reflect its weak earnings performance due to a lack of economies of scale in its essential brokerage business, and ongoing concerns about its corporate governance. The ratings also take into account RSC's low financial leverage and adequate liquidity.
RSC returned to net profit with an annualised return on equity of 13% during January-September 2009, from -9% (minus 9%) in 2008, against the backdrop of a substantial recovery in Taiwan's equity market. Nonetheless, its volatile earnings performance highlights RSC's weakness in relying heavily on proprietary trading for profit; this is partly due to RSC's strategy to maintain higher market risk exposures than its peers. RSC's stock and bond positions accounted for 38% and 39%, respectively, of its net worth at end-Q309. Offsetting these weaknesses are RSC's low financial leverage and adequate capitalisation. RSC's equity/assets ratio stood at a high 62% at end-Q309, and its capital adequacy ratio of 281% comfortably exceeds the 150% regulatory minimum. Additionally, RSC has an adequate liquidity position with its common equity sufficiently covering its less liquid assets by 1.1x at end-Q309.
RSC is one of the smallest securities firms in Taiwan with 0.31% of the local stock brokerage market. China Man-Made Fiber Corporation is RSC's largest shareholder with a 72% ownership. RSC's significant related party exposure, totalling 22% of RSC's net worth at end-Q309, is indicative of the company's weakness in corporate governance.
RSC's ratings have been affirmed as follows:
- National Long-term rating at 'BBB-(twn)'; Outlook Stable
- National Short-term rating at 'F3(twn)';
- Individual rating at 'D/E'; and
- Support rating at '5'.
Applicable criteria available on Fitch's website at www.fitchratings.com: "Global Financial Institutions Rating Criteria", dated 29 December 2009 and "Rating Criteria for Securities Firms", dated 30 December 2009.
Contacts: Yuchi Fan, Joyce Huang, 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.
Media Relations: Karen Cho, Hong Kong, Tel: +852 2263 9935,
Email:
karen.cho@fitchratings.com.
Additional information is available at www.fitchratings.com.
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