Fitch: No Rating Impact on Yuanta Group from Acquisition, JV

Sun Mar 9, 2014 11:27pm EDT

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(The following statement was released by the rating agency) TAIPEI/HONG KONG, March 09 (Fitch) Fitch Ratings says Taiwan-based Yuanta Securities Co., Ltd's (YS; BBB+/Stable) proposed acquisition of Tong Yang Securities (Tong Yang) in Korea and establishment of a joint venture in China are not significant enough to affect the ratings of YS which in turn drives the ratings of other entities within the Yuanta Group. The planned acquisition and investment in the joint venture will not tax the Yuanta Group's strong financial flexibility. The investment in the Chinese joint venture will amount to just 2% of the group's equity, while the planned acquisition of 50.3% of Tong Yang will form 5% of its equity. Both can be funded by excess regulatory capital or liquid assets, rather than debt. Yuanta Group's balance sheet will therefore remain robust after the two transactions, with YS's ratio of equity to assets high at around 44% and its parent's double leverage moderate at around 111% at end 2013. Although the two transactions will allow the Yuanta Group to expand its regional footprint, the synergies will be limited in the near term. In China, YS plans to form a joint venture in Shenzhen, in which it will own 51% and have management control, in 4Q14. The move will help YS tap the growth potential in China and the close investment and trade links between China and Taiwan, while the associated risk is expected to be manageable due to its small scale. In Korea, the Tong Yang purchase for USD256m is scheduled to be completed in 2Q14, subject to approvals by Tong Yang's shareholders and regulators in both jurisdictions, and Fitch expects no further capital injection in the near term. However, YS can expect to face challenges in retaining Tong Yang's customers and staff and maintaining its share of 3%-4% of Korea's securities market. Tong Yang is a niche player in retail brokerage and asset management. Please see "Fitch Affirms 8 Taiwan Securities Companies", dated 28 May 2013, for an update of the group's credit profile. Contacts: Cherry Huang: Director, +886 2 81757603 Suite 1306, 13F, Tun Hwa N. Rd., Taipei, Taiwan Sophia Chen Director +886 2 8175 7604 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available at www.fitchratings.com. 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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