TEXT-Fitch: No Immediate Rating Impact from Hana's Proposed Takeover of Korea Exchange Bank
(The following was released by the rating agency)
SEOUL, January 30 (Fitch) Fitch Ratings says that there is no immediate impact on Korea Exchange Bank's (KEB, 'A-'/Stable) ratings from Hana Financial Group's (Hana) proposal to fully acquire the bank.
Fitch does not expect the acquisition to affect KEB's IDR and senior unsecured debt rating as they are currently driven by an extremely high propensity of the South Korean government ('AA-'/Stable) to support KEB, if needed. Unless there is a material change in South Korea government's ability or propensity to support KEB, Fitch expects no change in the support-driven IDRs.
Fitch also does not expect any immediate impact on KEB's 'bbb+' Viability Rating (VR) at this stage. While the acquisition may lead the bank's capitalisation to weaken, Fitch does not expect it to be significant enough to cause a downgrade of the VR. However, Fitch would not rule out a downgrade of the VR if the takeover, in a worst case scenario, leads to significant erosion of capital level at KEB. Hana, the largest shareholder with a 60% stake in KEB, recently proposed to swap KEB's shares into Hana's shares by 4 April 2013. If the tender offer is successful, Hana will have full ownership of KEB.
Shareholders of Hana and KEB who reject the offer can cash-in their respective rights by exercising the put-back option during a 10-day exercise period (15 March 2013 to 25 March 2013). The takeover offer will be invalid if the put-back option exercise exceeds KRW1trn at either Hana or KEB.
Fitch has calculated that in the worst case scenario, the total claims amount to KRW2trn, shaving 3pp off KEB's Fitch core capital ratio. Both KEB and Hana may be left holding KRW1trn treasury stocks each from the exercise of the put-back options, particularly if the stock market is not strong enough to encourage KEB minority shareholders to accept Hana's takeover offer. There is a risk that Hana, upon full ownership of KEB, may upstream significant dividend from the latter to improve its own financial position that has been weakened by its initial acquisition of KEB in February 2012.
Fitch will closely monitor developments surrounding the takeover offer. The closing share prices on 29 January 2013 were above the strike prices by about 4.4% for KEB and about 6.4% for Hana.