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Fitch Ratings-Taipei/Hong Kong/Singapore-19 November 2008: Fitch Ratings has today assigned Taiwan's Reliance Securities Co., Ltd. (Reliance) a National Long-term rating of 'BBB-(twn)' (BBB minus(twn)), National Short-term rating of 'F3 (twn)', Individual rating of 'D/E', and Support rating of '5'. The Outlook is Stable.
Reliance's ratings primarily reflect the company's small franchise and weak performance in earnings as well as in corporate governance. The ratings also consider Reliance's large equity base relative to its assets and adequate liquidity.
Constrained by its limited brokerage scale, Reliance's profitability has been weak and heavily influenced by proprietary trading results. It reported a preliminary net loss of TWD110m (8.9% of equity) in Q108-Q308 due mainly to its proprietary trading loss given the steep decline in Taiwan's stock markets. Despite this, Fitch notes that Reliance has maintained sufficient capital to absorb the market risk in its trading portfolios. Reliance's capital adequacy ratio stayed well above the regulatory minimum requirement of 150% at end-H108, even with regulations requiring all of its long-term investments and fixed assets to be fully deducted from eligible capital. Reliance's liquidity appears adequate with a current ratio of 168% at end-H108. The ratio would fall to 110% if those less-liquid corporate bond investments are excluded.
China Man-Made Fibre Corp. Group (CMFC), one of the pioneers in the man-made fibre industry, is Reliance's largest shareholder, owning 72% of Reliance's shares at end-H108 and eight out of the 11 seats on the board. CMFC has developed its presence in financial services through investments in Reliance, Taichung Commercial Bank ('BBB-' (BBB minus)/'F3'/Outlook Stable) and Reliance Securities Investment Trust Corp. The significant related-party exposures totaling TWD353m (25.5% of equity) at end-H108 on Reliance's balance sheet highlights potential corporate governance concerns.
Established in 1989, Reliance is a small securities firm with six branches and a national brokerage market share of 0.3% in 2007.
Contacts: Joyce Huang, Sophia Chen, 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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