RPT-Fitch Upgrades Panin Sekuritas to 'AA-(idn)'; Outlook Stable

Mon Jun 9, 2014 5:47am EDT

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June 9 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has upgraded PT Panin Sekuritas Tbk's (Panin Sekuritas) National Long-Term Rating to 'AA-(idn)' from 'A+(idn)'. The Outlook is Stable. At the same time, Fitch also has assigned a National Short-Term Rating of 'F1+(idn) to the company.

'AA(idn)' Long-Term National Ratings denote expectations of very low default risk relative to other issuers or obligations in the same country. The default risk inherently differs only slightly from that of the country's highest rated issuers or obligations.

KEY RATING DRIVERS

The rating upgrade reflects improvement in Panin Sekuritas's risk profile, which is underpinned by robust capitalisation and low leverage, resilient performance in earnings and asset quality as well as manageable exposure in its investment activities to market risks. In addition, the rating upgrade also considers the improved regulatory environment, including new rules to set a minimum free float for publicly listed companies at 7.5% of paid-up capital, which are aimed at increasing liquidity in the stock market.

Panin Sekuritas' equity to asset ratio has been consistently high and improved in the last two years due to limited borrowings and strong internal capital generation. The ratio rose to 74% in 2013from 56% in 2012, thanks to substantial retention of earnings. The company's business expansion has been largely funded through its own retained earnings.

Panin Sekuritas's asset management fees continued to increase in the last two years and were the largest revenue contributor of around 65% of total revenue in 2013. Its assets under management (AUM) of IDR 15tn at end-2013 made it the sixth-largest asset manager in Indonesia. Panin Sekuritas accounted for about 1.39% of total trading value in the Indonesian brokerage market, placing it 23rd out of 116 securities companies with Panin Sekuritas's retail accounts comprising of about 97% of total brokerage clients.. In Fitch's view, Panin Sekuritas is one of the strongest domestic securities companies in Indonesia because of its resilient and strong performance in revenue and profitability through cycles and contained market risk exposures.

The Stable Outlook reflects Fitch's expectation that Panin Sekuritas will maintain a steady risk profile over the near to medium term without significant increase in leverage.

RATING SENSITIVITIES

Upward rating potential is limited given that the capital market in Indonesia is still evolving, it is susceptible to external shocks and it is reliant on wholesale short-term funding. Upward rating potential is also limited by the weaker regulatory and operating environment in the brokerage sector compared with the banking industry. Downward pressure may arise from a material increase in risk appetite such as overly aggressive proprietary trading and margin financing, and significant increase in leverage for new business ventures.

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