Wednesday, December 17, 2008

TSFC makes default official

Rating reduced to D, fund-raising uncertain


TSFC Securities formally defaulted on a bill-of-exchange payment yesterday, triggering a credit downgrade and raising further uncertainties about the company's viability as a going concern. Tris Rating yesterday announced that it had downgraded its rating for TSFC to D from C.

Patareeya: FIDF won’t add funds

''The downgrade is based on TSFC's payment default on bills of exchange due on Dec 17,'' Tris said in a statement.

TSFC, a provider of margin loans and securities repurchase operations, is in a desperate bid to raise new capital to shore up its reserves to cover portfolio losses with the sharp decline in the stock market this year.

Company shareholders, who include the Finance Ministry, the central bank's Financial Institutions Development Fund, local banks and brokers, agreed last Friday to a plan aimed at raising one billion baht in new capital through a rights issue of preferred shares payable on Dec 26.

The company agreed as well to seek approval from the Securities and Exchange Commission to enter business rehabilitation under the Bankruptcy Court in case it is unable to raise capital as required.

Officials at the Stock Exchange of Thailand, a TSFC shareholder with a 5% stake, insist that the capital increase plan is viable and ongoing. The SET is taking the lead in searching for a possible new partner for TSFC, viewing the company's core mission as still necessary in the capital market.

SET president Patareeya Benjapolchai said the exchange could increase its shareholding ratio in TSFC under the new capital increase.

She said that only one TSFC shareholder, the Financial Institutions Development Fund, had definitely stated that it would not participate in the rights issue.

The FIDF holds a 28% stake in the TSFC from assets seized from ailing finance and securities companies during the 1997 crisis. Under the law, the fund is prohibited from injecting new capital in the broker, Mrs Patareeya said.

Among local banks, who hold 37% of TSFC, interest remains to participate in the capital increase, she added.

For the TSFC, court-supervised business rehabilitation would give the company breathing room by imposing a stay on creditors and more time to seek new investors.

Mrs Patareeya insisted that the company would not go bankrupt, and that rehabilitation was aimed at giving the company time to review its assets and liabilities and develop a new business strategy aimed at ensuring its long-term viability.

The TSFC's core businesses include offering margin loans to investors, securities repurchase agreements and portfolio investment in stocks, bonds and unit trusts.Araya Thirakomen, head of the Provident Fund Club and a deputy managing director at Tisco Asset Management, said business rehabilitation would impose a stay on TSFC creditors, including local provident funds.

At the same time, the court would protect credit claims and allow an orderly repayment of liabilities.

''If the TSFC is able to rehabilitate its business, then we see it quite likely that provident funds that have invested in TSFC notes will be repaid,'' she said.

As of November, the TSFC had 6.5 billion baht worth of bills of exchange outstanding in the market. On Nov 28, the SEC directed local asset managers to ''set aside'' holdings in TSFC bills of exchange to limit the potential losses for new fund investors.

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