Fitch Ratings has assigned Asia Securities (Pvt) Ltd (ASPL) a National Long-Term Rating of ‘BBB-(lka)’. The Outlook is Stable.
ASPL is a prominent equity brokerage in Sri Lanka. The company, which was founded in 1990, also offers broker credit services to its clients.
The rating on ASPL reflects its franchise as one of the leading equity brokerages in Sri Lanka, simple yet generally effective risk management, adequate capitalization relative to local regulatory requirements, and acceptable liquidity buffers as indicated by liquid assets and contingent liquidity coverage of short-term liabilities.
The rating also incorporates limitations from the weaknesses of the industry’s operating environment, including a small and volatile equity market, still-developing market infrastructure and regulatory framework, as well as ASPL’s narrower funding base and variable profitability due to its dependence on fluctuating stock-market revenues.
“We believe ASPL’s lean management team leaves it susceptible to key-person risk, although this is mitigated by the stability of its senior leadership since an ownership change in 2015”.
ASPL’s revenues are primarily from equity brokerage and margin lending, with little direct investment risk. Credit risks in margin financing are mitigated by a 50% regulatory loan-to-value limit.
ASPL applies an additional valuation discount on securities that it deems to be higher-risk, forming a further buffer against collateral risk. Meanwhile, upcoming sector enhancements to address settlement and other operational risks lag those of many markets in Asia, but should help to strengthen industry operations. ASPL’s reliance on volatile equity-market revenues weighs on its credit profile.
Operating profitability has fluctuated widely over the past few years - although this partly reflected a number of one-off costs in FY19.
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