(The following statement was released by the rating agency)
Sept 08- Fitch Ratings has affirmed India-based DSP Merrill Lynch Capital Limited's (DSPMLC) National Long-Term Rating at 'Fitch AAA(ind)' with a Stable Outlook and its National Short-Term Rating at 'Fitch A1+(ind)'. A list of additional rating actions is provided at the end of this commentary.
DSPMLC's ratings primarily factor in the continued support of its ultimate parent - Bank of America Corporation (BAC; Long-Term Issuer Default Rating: 'A+'/Rating Watch Negative), given the latter's 100% ownership in the company. The ratings may be downgraded if DSPMLC's strong linkages with BAC are deemed by Fitch to have weakened.
DSPMLC forms an integral part of BAC's diversified India franchise, which includes wholesale banking, wealth management, investment banking, trading in fixed income securities and foreign currency and brokerage. DSPMLC provides loans against shares to BAC's corporate and high net-worth individual clients in India, and also trades in fixed income securities. Its systems including those of risk-management are overseen by and integrated within the ultimate parent.
Fitch notes the company's robust profit margins (return on average assets as at end-FY11: 2.95%) as it benefits from a low operating cost base and is also aided by BAC's established clients, franchise and systems in India. Also, it has a conservative business profile, with assets mainly in low-risk fixed income securities and certificate of deposits, and loans sufficiently secured against liquid shares. That being said, some of its high margin (and thus high risk) business lines, which are at an incipient stage like structured credit, are expected to pick up momentum in the near-term. This could expose the firm to more volatile operating performance.
DSPMLC's instrument ratings are as follows:
- Proposed INR9.65bn long-term fully principal protected equity-linked debentures: assigned a final rating of 'Fitch AAAemr(ind)'
- INR2.5bn short-term debt: affirmed at 'Fitch A1+(ind)'
- INR351.4m fully principal protected equity-linked notes: affirmed at 'Fitch AAAemr(ind)'
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