KEY RATING DRIVERS
The removal of the Rating Watch Evolving follows the completion of SCB X Public Company Limited's (SCBX; BBB/Stable/AA+(tha)) acquisition of a 100% stake in InnovestX from The Siam Commercial Bank Public Company Limited (SCB, BBB/Stable/AA+(tha)) in 3Q22.
InnovestX's rating is underpinned by shareholder support, as Fitch believes that InnovestX is a strategically important subsidiary of SCBX and there is a high probability that the parent would provide extraordinary support to InnovestX when needed.
The Stable Outlook is consistent with the Outlook of SCBX.
Important Role in Group: Fitch believes InnovestX holds an important function as the only arm of SCBX providing equity-related services to the group's clients. It also plays a strategic role in supporting the group's long-term growth plans in digital-asset related businesses. We regard InnovestX as a strategically important subsidiary of the group, but not necessarily a core subsidiary, due to its small contribution to group performance.
Close Integration and Control: There is a high level of management control and operational integration with SCBX. InnovestX's strategies are aligned with those of the parent. Moreover, Fitch believes there are synergies with the group, such as cross-selling opportunities between InnovestX and the group as well as business referrals from the group's retail and corporate client base. SCBX plans to spin off a stake in InnovestX in the medium term, but we expect SCBX to maintain majority ownership and control nonetheless.
Group's Support to Continue: The group provides ongoing support to InnovestX in the form of credit line facilities from SCB. Furthermore, we expect SCBX to provide funding to support InnovestX's expansion, including in terms of capital injections when required.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
InnovestX's National Ratings are linked to the Standalone Credit Profile of SCBX, as indicated by the parent's National Ratings. Hence, any weakening at SCBX could lead to negative rating action on InnovestX, while also taking into account relativities within Thailand's national rating universe.
A decline in SCBX's propensity to support its subsidiary could also affect the ratings. This may be indicated by a deterioration in InnovestX's strategic role within the group or Fitch's assessment of a reduced commitment by the shareholder to support the company, such as:
- a reduction in the shareholding to below 75% with the presence of a significant minority shareholder
- a decrease in the level of management control and integration
- reduced business linkages and referrals
- a significant and persistent deterioration of InnovestX's performance, perhaps from execution risk in its new digital initiatives
- a weakening commitment by the parent to provide financial and operational support to InnovestX.
Fitch may also assess InnovestX's rating on a standalone basis if it no longer believes support from SCBX can be relied on. This may lead to a multiple-notch downgrade and could occur if SCBX were to reduce its ownership to below 50% combined with a loss of control.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
We may upgrade InnovestX's ratings in the event of an upgrade of SCBX's National Long-Term Rating, which would indicate a stronger ability to support its subsidiary, while taking into account the group's positioning within Thailand's national rating universe.
Any perceived strengthening in SCBX's propensity to support InnovestX could also lead to positive rating action. This may occur if InnovestX starts to play a significantly larger role in SCBX's consolidated franchise. However, we do not expect any major changes in the near-term in view of InnovestX's small profit contribution to SCBX.
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
InnovestX's National Ratings are linked to SCBX's National Long-Term Rating.
Additional information is available on www.fitchratings.com
Source: Fitch Ratings