Fitch Affirms Krungsri Cash Management Funds at ‘AAAmmf(tha)’

Stocks and Financial Services Press Releases Wednesday November 28, 2012 10:55
Bangkok--28 Nov--Fitch Ratings

Fitch Ratings (Thailand) has affirmed Krungsri Cash Management Fund’s (KFCASH) National Money Market Fund Rating at ‘AAAmmf(tha)’. The money market fund is managed by Krungsri Asset Management Company Limited (KSAM, formerly known as Ayudhaya Fund Management Company Limited).

The rating reflects the portfolio’s strong overall credit quality and diversification, a short maturity profile, and minimal exposure to interest rate and spread risks. The rating also reflects its strong overnight and one-week liquidity profile and the capabilities and resources of KSAM as investment advisor.

The rating further takes into account the fund’s strong capacity to achieve its investment objectives of preserving principal and providing shareholder liquidity through limiting credit, market and liquidity risk.

In line with Fitch’s investment guidelines for ‘AAAmmf(tha)’-rated money market funds, KFCASH maintains a portfolio of high credit quality assets, by investing exclusively in securities rated ‘F1+(tha)’ or ‘F1(tha)’ with a minimum 70% investment in government securities. Counterparty risk is limited by transacting with entities rated ‘F1(tha)’ or higher. The fund also limits concentration risk arising from exposures to individual issuers and counterparties, consistent with Fitch’s criteria.

The fund’s Portfolio Credit Factor (PCF) has been below 0.1 for the past 12 months, well under Fitch’s criteria of 1.50 or less for a ‘AAAmmf(tha)’ rating. The PCF is a risk-weighted measure of the fund’s portfolio assets that accounts for the credit quality and maturity profile of a fund’s portfolio securities.

The fund seeks to limit interest rate and spread risk by limiting its weighted average maturity to reset date (WAMr) to 60 days, in line with Fitch’s ‘AAAmmf(tha)’ investment guidelines. Although the fund does not set a limit on weighted average final maturity (WAMf), all of its investments are in fixed-rate securities resulting in similar levels between its WAMr and WAMf. The fund’s WAMr was 42 days as of 12 November 2012. The fund also limits the final maturity of any individual securities to 193 days or less.

The fund maintains minimum amounts of daily and weekly liquidity to meet investors’ redemption requests. The fund has more than 70% of its portfolio in securities maturing overnight and assets recognised as eligible as overnight liquidity and more than 90% in securities maturing within one week or similarly eligible. The fund’s liquidity guidelines are more stringent than Fitch’s investment guidelines, which help mitigate its high - albeit on balance decreasing - investor concentration and redemption risks. However, Fitch’s guideline to hold at least 20 % in securities maturing within 10 days has not been consistently met, particularly since the fund has not conducted reversed-repo transactions since May 2012. Nevertheless, Fitch takes comfort from the fund meeting its limit of at least 20% of securities maturing within 14 days.

The fund pursues its investment objective by investing mainly in government and Bank of Thailand money market instruments. The remainder (up to 30%) is invested in the financial institutions sector in the form of saving accounts and repurchase agreements. The fund is restricted from investing in securities issued by corporates. KFCASH has invested more than 80% of its assets under management (AuM) in government and Bank of Thailand bills for the past 12 months. As of 12 November 2012, the fund’s AuM stood at THB12.4bn.

KSAM is 76.6% owned by Bank of Ayudhya (‘AA-(tha)’/Stable/‘F1+(tha)’). At end-October 2012, KSAM had THB143.4bn in total AuM. Approximately 67% of AuM were mutual funds while private and provident funds contributed the remainder. With a market share of 4%, KSAM ranked 8th in Thailand’s mutual fund business with 90 funds under its management. The fund’s custodian bank was changed to Siam Commercial Bank (rated ‘AA(tha)’/Stable/‘F1+(tha)’; ‘BBB+’/Stable/‘F2’) in May 2012.

The ratings may be sensitive to material changes in the credit quality or market risk profiles of the respective funds. A material adverse deviation from Fitch guidelines for any key rating driver could lead to the rating being downgraded by Fitch. For additional information about Fitch money market fund ratings guidelines, please see the criteria referenced below, which can be found on Fitch’s website.

To maintain the National Money Market Fund rating, Fitch seeks weekly fund and portfolio holdings information from KSAM and conducts surveillance checks against its investment guidelines.

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