Fitch Affirms Five Thai NBFI Foreign Subsidiaries' National Ratings; Places Capital Nomura on RWN

• CGS-CIMB Securities (Thailand) Co., Ltd. (CGS-CIMB TH) at 'A(tha)'; Stable Outlook.
• Capital Nomura Securities Public Company Limited (CNS) at 'AA(tha)'; placed on Rating Watch Negative (RWN)
• EASY BUY Public Company Limited (EB) at 'AA(tha)'; Stable Outlook
• Maybank Kim Eng Securities (Thailand) Public Company Limited (MBKET) at 'AA(tha)'; Stable Outlook.
• Yuanta Securities (Thailand) Company Limited (YSTH) at 'AA(tha)'; Negative Outlook.

Fitch also affirmed the National Long-Term Rating of Thai ORIX Leasing Company Limited's (TOLC) Thai baht-denominated guaranteed bonds at 'AAA(tha)' with Stable Outlook.

A full list of rating actions is at the end of this commentary.

KEY RATING DRIVERS
NATIONAL RATINGS AND SENIOR DEBT

The ratings on the five entities - CGS-CIMB TH, CNS, EB, MBKET, and YSTH - are underpinned by Fitch's belief that they would receive extraordinary support, if needed, from their respective overseas parents, CGS-CIMB Securities International Pte. Ltd. (CGS-CSI), Nomura Holdings, Inc. (NHI, A-/Stable, Viability Rating (VR): bbb+/RWN), ACOM Co., LTD. (ACOM, BBB+/Stable), Malayan Banking Berhad (Maybank, BBB+/Stable, VR: bbb+) and Yuanta Financial Holdings Co., Ltd. (YFHC, BBB+/Negative).

Fitch expects CNS, EB, MBKET and YSTH will maintain their status as strategically important subsidiaries. Thailand is a key market for their parent groups, and the Thai subsidiaries play an important role in the groups' strategy for southeast Asia. The agency also believes that these Thai subsidiaries will have strong operational and financial synergies with their parents, as indicated by the close management control, integrated business development and financial back-up facilities.

Fitch regards CGS-CIMB TH as a core subsidiary of CGS-CSI as it is the group's second-largest subsidiary and forms an integral part of CGS-CSI's regional network. Furthermore, there is near-full ownership by CGS-CSI, clear control and branding linkages. CGS-CSI's ability to support CGS-CIMB TH comes ultimately from China Galaxy Securities Co., Ltd. (CGS), which controls the Singapore joint venture.

CNS's National Ratings are driven by NHI's VR rather than the latter's Long-Term Issuer Default Rating (IDR). This is because NHI's IDR is driven by support considerations from the Japanese sovereign (A/Stable) based on its systemically important status in Japan, and Fitch believes that such support may not necessarily flow through to non-core overseas subsidiaries. The CNS's National Long-Term Rating has been placed on RWN reflecting the RWN on NHI's VR.

Fitch has equalised the senior debt ratings of EB with its National Long-Term Rating in accordance with Fitch's rating criteria.

YSTH's short-term debenture programme is rated at the entity's National Short-Term Rating, as issuances under the programme will constitute the company's unsubordinated and unsecured obligations.

Please also refer to recent rating actions that reflect similar action at the parent companies:

• "Fitch Downgrades EASY BUY to 'AA(tha)'; Outlook Stable", dated 8 April 2020, at www.fitchratings.com/site/pr/10117080;
• "Fitch Downgrades Maybank Kim Eng Securities (Thailand) to 'AA(tha)'; Outlook Stable", dated 20 April 2020, at www.fitchratings.com/site/pr/10118601; and
• "Fitch Revises Outlook on Yuanta Securities (Thailand) to Negative; Withdraws Debenture Ratings", dated 27 April 2020, at www.fitchratings.com/site/pr/10119806.

GUARANTEED BONDS

The National Long-Term Ratings on TOLC's guaranteed bonds are based entirely on irrevocable and unconditional guarantees provided by its parent company, the Japan-based ORIX Corporation (ORIX, A-/Negative). ORIX's Long-Term Foreign-Currency Issuer Default Rating (IDR) of 'A-', is higher than Thailand's Long-Term Local-Currency IDR of 'BBB+', and correlates to the highest rating on our Thai National Rating scale of 'AAA(tha)'.

The Stable Outlook implies the National Long-Term Rating of the guaranteed bonds could remain at 'AAA(tha)', even if ORIX's Long-Term Foreign-Currency IDR were to be downgraded to 'BBB+', as the rating would be at the same level with Thailand's Long-Term Local-Currency IDR and would remain consistent with the best credits in the country.

SUBORDINATED DEBT

Fitch rates the subordinated debt of MBKET one level below the National Long-Term Rating as the debt has larger loss-severity risks than senior unsecured instruments, which rank higher in the priority of claims. The notching also incorporates the subordinated notes' lack of going-concern loss absorption and equity conversion features.

RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:

NATIONAL RATINGS AND SENIOR DEBT

Fitch could take a positive rating action on CGS-CIMB TH, CNS, EB, MBKET and YSTH if the parents were to have greater ability to provide support, as indicated by a positive change in the parents' Long-Term IDRs or Outlooks - or VRs in the case of CNS and MBKET or credit profile in the case of CGS-CIMB TH - while also taking into the consideration each entity's ratings in relation to our Thai National Rating scale.

A rating upgrade could be possible for CNS, EB, MBKET and YSTH if Fitch perceives a greater propensity for parental support to their respective subsidiaries, with the subsidiary being re-assessed as being a core part of the group. This may be indicated by a substantial increase in the subsidiary's role within the group, such as a material increase in contributions to the group's overall franchise, as well as by (in the case of EB) increased shareholding.

A positive rating action on EB's National Long-Term Rating would result in an upgrade of EB's senior unsecured debt rating. The National Short-Term senior debt rating for YSTH is already at the highest level on the National Rating scale; therefore, there is no rating upside.

GUARANTEED BOND

The rating on TOLC's guaranteed bonds is at the top-end of the scale; hence, the rating upgrade is not possible.

SUBORDINATED DEBT

The rating on MBKET's subordinated debt will be upgraded if its National Long-Term Rating, which is the anchor rating, is upgraded.

Factors that could, individually or collectively, lead to negative rating action/downgrade:

NATIONAL RATINGS AND SENIOR DEBT

Fitch would downgrade CGS-CIMB TH, CNS, EB, MBKET and YSTH's National Long-Term Rating if their parents' credit profiles or VRs in the case of CNS and MBKET were to deteriorate.

There may also be downside to the ratings if the parents' propensity to provide extraordinary support were to reduce. For instance, this could occur from substantial reductions from current levels of shareholding, combined with reductions in the level of management control and financial or operational linkages. Fitch would also take into consideration each entity's rating strength relative to our Thai National Rating scale. However, Fitch does not expect a significant reduction in parental support propensity for these entities in the near to medium term.

A downgrade of EB's National Long-Term Rating would result in a similar rating action on its long-term senior debt rating. Similarly, a downgrade on the YSTH's National Short-Term Rating would lead to a downgrade of its short-term senior debt rating.

GUARANTEED BOND

Fitch could downgrade the National Long-Term Rating of TOLC's guaranteed bonds if ORIX's Long-Term Foreign-Currency IDR were to be below Thailand's Long-Term Local-Currency IDR, either by a downgrade of ORIX itself or an upgrade of Thailand's Long-Term Local-Currency IDR, while also taking into account relativities on our Thai National Rating scale.

A downgrade of ORIX's Long-Term Foreign-Currency IDR to 'BBB+' with Negative Outlook, could result in a revision of the Outlook on the guaranteed bonds to Negative.

SUBORDINATED DEBT

The rating on MBKET's subordinated debt will be downgraded if its National Long-Term Rating, which is the anchor rating, is downgraded.

BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Financial Institutions issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.

Additional information is available on www.fitchratings.com

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