KEY RATING DRIVERS
EB's ratings are underpinned by Fitch's expectation of shareholder support from the company's Japan-based parent, ACOM CO., LTD. (BBB+/Stable). ACOM's ratings are in turn driven by expectations of support from its ultimate shareholder, Mitsubishi UFJ Financial Group, Inc. (A-/Stable).
Fitch believes EB is a strategically important subsidiary of ACOM. It is ACOM's largest overseas subsidiary, contributing around 19% of the parent's revenue, and has a key role in supporting ACOM's expansion strategy outside of Japan. ACOM owns 71% of EB, and there is a significant level of management control and operational integration. EB also benefits from the parent's know-how and risk management expertise in the consumer finance segment.
EB has an established presence in Thailand's personal loan market, and Fitch expects its franchise to support its sound financial performance. EB retained solid profitability in 2021, despite the challenging operating environment, with pre-tax income/average assets of 10.1%. This was down only slightly from the pre Covid-19 pandemic level of 12.2% in 2019. The company also maintains sound internal capital generation, with debt/tangible equity falling to 0.7x in 2021, from 1.1x in 2019, and representing a strong buffer against unexpected downside.
EB's senior debt is rated at the same level as the company's National Long-Term Rating, as it represents the unsecured and unsubordinated obligations of the borrower.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
A decline in the parent's ability to support EB could lead to ratings downside. This may be indicated by negative rating action on ACOM's Long-Term Issuer Default Rating - although Fitch would also take into account the relativity of EB's credit profile within Thailand's national rating universe.
A decline in support propensity could also lead to ratings downside. For example, any plans to reduce ACOM's shareholding in EB to below 50%, combined with lower parental control and integration, could lead to a re-assessment of support prospects. However, Fitch does not expect any changes in support propensity in the near to medium term.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Positive rating action at ACOM could be reflected in EB's rating, although Fitch would also consider EB's profile in comparison with other entities rated on Thailand's national rating scale.
There could be rating upside if Fitch re-assesses EB to be a core subsidiary of ACOM. This may stem from the agency's belief that EB has become an integral part of ACOM, perhaps due to a significantly higher earnings or asset contribution from EB, combined with greater reputational linkages and shareholding level.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
EB's ratings are linked to the credit profile of ACOM.
Additional information is available on www.fitchratings.com
Source: Fitch Ratings