Published on January 13, 2006

Market dives 1.4% on report bank plans to raise capital, broker downgrades stock

Stocks yesterday tumbled 1.4 per cent on a rumour that Kasikornbank would raise its registered capital and after a brokerage house downgraded the bank’s stock to “underperform” following a steep increase in its price.

The banking sector, which has led the stock rally since late last year, was at the centre of the selling pressure. Kasikornbank dipped 6.7 per cent to Bt70 from Bt75 at the previous close. Bangkok Bank was off 3.4 per cent at Bt113 and Siam Commercial Bank dropped 4.2 per cent to Bt56.

The SET Index started the day with a marginal rise and headed south to the day’s trough of 748.07 before rebounding slightly to end at 753.04. Turnover was brisk at Bt33.9 billion.

A source at a local broker said the two bits of news about Kasikornbank were the main culprits for the steep fall in the stock market yesterday.

Kasikornbank senior vice president Adit Laixuthai rushed to assure the market that no change in the bank’s registered capital was in the works.

“We have no need to raise fresh funds at the moment as we have a strong capital adequacy ratio of 15 per cent of risk-weighted assets and our first-tier capital is almost 10 per cent, which is a level sufficient for expansion. Besides, our subsidiaries already cover a full range of financial services,” he said. “The recent capital-increase resolution has already expired and we did not renew it because we don’t need capital.”

The country’s third-largest bank said in 2004 that it planned to beef up its registered capital of Bt6.5 billion to finance acquisitions of related financial businesses. However, the recapitalisation resolution was allowed to expire last year because the bank had no need to take over other financial companies after it established its own subsidiaries to provide universal banking services.

Brokerage CLSA said in a report that it downgraded Kasikornbank’s stock from buy to “underperform” after rallying strongly since November. “Operating costs are set to rise significantly over the next three years as management spends heavily on expanding distribution channels and improving IT [information technology] systems. Although this is positive for the bank’s long-term earnings profile, it will affect earnings momentum for the foreseeable future,” the report said.

CLSA also lowered its fair value estimate for the stock from Bt84.5 to Bt76 per share.

Merrill Lynch also revised its rating of PTT Exploration and Production Plc (PTTEP) to “neutral” from “buy” following sharp gains in the stock.

An analyst at TSEC Securities suggested that investors adjust their portfolios due to an absence of fresh positive news and looming profit-taking in big market cap stocks.

Meanwhile, the Government Pension Fund said Finance Minister Thanong Bidaya has agreed in principle with its plan to increase its investment limit in local stocks to 30 per cent of its portfolio from the current 20 per cent.

The Government Pension Fund has a Bt280-billion portfolio of which 19 per cent is invested in equities, around 10 per cent in offshore assets, 3.5 per cent in property assets and the rest in bonds and bank deposits, said secretary-general Visit Tantisunthorn.

Siriporn Chanjindamanee,

Somruedi Banchongduang

The Nation

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