OREANDA-NEWS. Fitch Ratings has today assigned Taiwan-based Grand Fortune Securities Co., Ltd. (GFS) a National Long-Term Rating of 'BBB+(twn)' and National Short-Term Rating of 'F2(twn)'. The Outlook is Stable.

GFS is a small investment bank in Taiwan. It was established at 1989 as a small brokerage firm and in 2009 transformed into a boutique investment bank focusing on initial public offerings (IPO) and secondary public offering s(SPO) after Chairman Jerry Huang acquired a controlling stake in the company. GFS's share in the domestic SPO market by value of issuance is 4%-6%, which is considerably larger than domestic peers of a similar size.

KEY RATING DRIVERS

NATIONAL RATINGS

The company's ratings reflect its niche franchise in the domestic equity and debt underwriting market, its higher risk appetite in equity and debt investments relative to other similarly rated peers, and key man risk. A large part of GFS's investments is allocated to government securities and convertible bonds issued by investment-grade issuers or guaranteed by investment-grade financial institutions, which help counterbalance its more concentrated and larger investment exposures compared with peers.

The company's franchise relies on the Chairman Jerry Huang to a great extent and the underwriting team he brought in. Fitch sees this as a key man risk that may also present risks to the company's development of a robust management system and corporate governance. Nonetheless, the company has a satisfactory record of effective execution to its strategies.

The ratings also consider GFS' adequate financial profile with the company maintaining low leverage. It relies on wholesale funding for liquidity. GFS's repo counterparties are concentrated, but are backed by high-quality government securities. The company's profitability is more volatile than brokerage-centric peers because of its focus on investment banking. Its ROA was only 0.8% in 1H16, lower than in previous years (average of 4.9% in 2013-2015), but may be boosted by a large underwriting pipeline scheduled for 2H16.

The Stable Outlook is based on Fitch's belief that GFS will maintain its franchise in the domestic underwriting market, without taking on excessive investment risk.

RATING SENSITIVITIES

NATIONAL RATINGS

Sharp increase in risk appetite resulting in material deterioration in capitalisation may trigger a negative rating action.

Ratings upside for GFS is limited in the near to medium term, unless the company demonstrates sustained improvement in franchise and earnings diversification.