OREANDA-NEWS. Fitch Ratings (Thailand) Limited held its semi-annual investor briefing in Bangkok today. The agency highlighted its ratings criteria and approaches for ratings of Basel III capital securities issued by banks and Real Estate Investment Trusts (REITs).

The event aimed to inform investors and potential issuers of how Fitch would assess these types of securities and issuers. "So far, there have been only limited issuances of these types of bonds in Thailand. Fitch expects Thailand's bond markets to continue to develop with further issuance of new types of bonds and a broader range of companies accessing capital market funding in the longer term," said Mr. Vincent Milton, Managing Director of Fitch Ratings (Thailand).

Mr. Milton added that Fitch earlier this month affirmed Thailand's Long-Term Foreign Currency and Local Currency Issuer Default Ratings (IDR) at 'BBB+'/Stable and 'A-'/Stable respectively, due to Thailand's external, fiscal and macroeconomic strengths. However, negative pressures have emerged from weaker-than-expected GDP growth due to high household indebtedness, weak investment and political uncertainty.

Mr. Yingyong Nilasena, CFA, Deputy Secretary General for the Government Pension Fund, was the guest speaker at Fitch's event and he discussed the Investor Outlook for 2015 and his view on Basel III capital securities and REITs.

During the conference, senior analysts of Fitch Ratings (Thailand) discussed Fitch's approach in rating these types of instruments.

Mr. Patchara Sarayudh, Director in the Financial Institutions team, said that Fitch's general approach is to rate Basel III Tier-2 capital securities (B3T2) of Thai banks by one notch down from the anchor rating if there is a partial write-down or equity conversion feature at the point-of-non-viability, and by two notches if there is a mandatory full write-down. The anchor rating is typically the Viability Rating (VR) or in some cases the Long-Term IDR if Fitch believes there is a strong likelihood of sovereign or institutional support for the bank prior to non-viability.

The notching for Basel III Tier-1 capital securities would be more severe. Fitch is likely to rate these securities at least five notches below the VR, due to their easily triggered loss absorption features and deep subordination.

As Basel III securities are relatively new to Thailand, so far, there are three issuances of B3T2 rated by Fitch but Fitch expects more issuance in the next several years. Kasikornbank Public Company Limited's (KBANK: BBB+/AA(tha)/VR: bbb+) B3T2 is rated at 'AA-(tha)', one notch below its Long-Term National Rating which is based on its VR. Krung Thai Bank Public Company Limited's (KTB: BBB/AA+(tha)/VR: bbb-) USD B3T2 is rated at 'BBB-', one notch below its support-driven IDR. TMB Bank Public Company Limited's (TMB: BBB-/A+(tha)/Stable) B3T2 is rated at 'A(tha)', one notch below its Long-Term National Rating.

Ms. Somruedee Chaiworarat, Director of Corporates, said that the existing REITs in Thailand still have lower financial leverage than those in Singapore and more developed markets such as the United Kingdom. This provides them with the room for debt financing. REITs have to rely on capital markets to refinance debt and fund investments as a result of regulations requiring them to limit long-term cash retention, as well as their relatively low cash generation compared to the investment requirements for their long-term capital intensive assets.

Fitch's approach in rating REITs is to assess both their business and financial profiles. Fitch considers REITs' property portfolios in terms of liquidity, diversification, scale, quality, and development exposure. Fitch also reviews the REITs' rental income risk profile such as occupancy, lease duration, lease expiration, lease renewal percentages as well as tenant quality and concentration. The lease and debt maturity profiles of REITs are also assessed for asset liability cash flow matching. Accessibility to capital is also a key factor. Fitch also assesses REITs' profitability, financial leverage as well as their financial flexibility.

The conference was attended by over 50 executives and officials from the regulatory, investor, financial and corporate sectors.