Fitch Places Cosmos Bank, Taiwan on Rating Watch Positive

Sun Feb 16, 2014 10:37pm EST

(The following statement was released by the rating agency) TAIPEI/HONG KONG/SINGAPORE, February 16 (Fitch) Fitch Ratings has placed the ratings of Taiwan-based Cosmos Bank, Taiwan (Cosmos) on Rating Watch Positive (RWP). A full list of rating actions is at the end of this rating action commentary. The RWP follows the announcement that China Development Financial Holding Corporation (CDFHC) is to acquire all the shares of Cosmos in a transaction valued at TWD23.1bn. Cosmos shareholders will receive TWD13.4 and 0.2 new CDFHC common share for each Cosmos share. Following the acquisition, CDFHC plans to transfer to Cosmos the assets and operations of subsidiary China Development Industrial Bank's (CDIB) corporate banking and global financial market business, as well as its leasing business and other financial-related investments. In the two-year period after the completion of the transaction, CDIB will gradually transform from an industrial bank to a venture capital firm, focusing on principal investments and private equity fund management. Fitch believes the acquisition facilitates the group's strategic plan to form a commercial bank with a full scope of services and spin-off its direct investment and private equity businesses. KEY RATING DRIVERS - NATIONAL RATINGS The RWP reflects Fitch's view that Cosmos' ratings will benefit from support from CDFHC upon completion of the acquisition as it becomes a wholly owned subsidiary of CDFHC. CDFHC's credit profile is mainly driven by those of its two main subsidiaries -CDIB and KGI Securities (KGI). In Fitch's view, these entities have stronger credit profiles than Cosmos, underpinned by their market positions in their respective sectors, sound balance sheet strength and moderate leverage. Cosmos, as the commercial bank under CDFHC, will see an improved credit profile through an enhanced franchise, more complete product offerings, more diversified loan portfolio and cross-selling synergy among CDFHC's subsidiaries. Cosmos is one of the smaller commercial banks in Taiwan with deposit market share of 0.95% and 49 domestic branches at end-3Q13. It has a market-leading position in the cash card business and a focus on consumer banking. CDIB is an industrial bank with relatively balanced business mix between principal investment, corporate banking and financial market investments. RATING SENSITIVITIES - NATIONAL RATINGS The acquisition of Cosmos by CDFHC is scheduled to be completed by end of July 2014, subject to shareholder and regulatory approvals. Completion of the transaction is likely to lead to an upgrade of Cosmos' ratings, initially due to support from the holding parent, CDFHC, under Taiwan's Financial Holding Company Act. The new ratings will be determined once there is further clarity on the overall business strategy and capital plan of Cosmos. The rating actions are as follows: National Long-Term Rating of 'BBB+(twn)'; placed on RWP National Short-Term Rating of 'F2(twn)'; placed on RWP Contact: Primary Analyst Jenifer Chou, CFA, FRM Associate Director +886 2 8175 7605 Fitch Ratings Limited, Taiwan Branch Suite 1306, 13F, 205, Tun Hwa N. Rd., Taipei Secondary Analyst Sophia Chen, CFA, CPA Director +886 2 8175 7604 Committee Chairperson Tim Roche Senior Director +61 2 8256 0310 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Note to editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(twn)' for National ratings in Taiwan. Specific letter grades are not therefore internationally comparable. Additional information is available at www.fitchratings.com. Applicable criteria "Rating FI Subsidiaries and Holding Companies", dated 10 August 2012, "Global Financial Institutions Rating Criteria", dated January 31, 2014, and "National Scale Ratings Criteria", dated 30 October 2013, are available at www.fitchratings.com. Applicable Criteria and Related Research: Rating FI Subsidiaries and Holding Companies here Global Financial Institutions Rating Criteria here National Scale Ratings Criteria here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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