Fitch Places OCBC on Watch Negative on Wing Hang Bank Takeover Plan

Wed Apr 2, 2014 10:55pm EDT

Related Topics

(The following statement was released by the rating agency) SINGAPORE, April 02 (Fitch) Fitch Ratings has placed Singapore-based Oversea-Chinese Banking Corp's (OCBC) Long-Term and Short-Term Issuer Default Ratings (IDR), and Viability Rating (VR) on Rating Watch Negative (RWN). At the same time, the agency has also affirmed OCBC's '1' Support Rating (SR) and 'A-' Support Rating Floor (SRF). A full list of rating actions is at the end of this rating action commentary. KEY RATING DRIVERS AND SENSITIVITIES - VRs and IDRs The rating actions were taken following OCBC's announcement that it planned to acquire the entire issued share capital of Hong Kong-based Wing Hang Bank Limited (WHB; 'A-'/Rating Watch Positive). The RWN reflects Fitch's expectations that the acquisition of WHB will increase OCBC's exposure to Greater China, where credit and operating risk is higher than in OCBC's home market of Singapore. This could potentially lead to deterioration in OCBC's credit profile. The voluntary general offer for WHB by OCBC is still conditional upon OCBC securing the necessary regulatory approvals, and the final stake in WHB that OCBC acquires is dependent on the level of acceptances of the remaining minority shareholders in WHB. An acquisition of this size (100% of WHB will cost SGD6.2bn) will materially reduce OCBC's core equity Tier 1 ratio. OCBC intends to raise equity to maintain prudent capital buffers after the acquisition, but even with the equity raising, Fitch expects that OCBC's core equity Tier 1 ratio will likely be lower than its pre-transaction level. Fitch will assess the impact of the acquisition on OCBC's standalone financial profile - particularly on its capital levels - as well as OCBC's expanding exposure to markets of higher credit risk and more volatile growth Asian markets after the transaction. The agency expects to resolve the RWN when further details on the bank's financing plans for the acquisition become available, or if the pre-conditional voluntary general offer is retracted by OCBC. KEY RATING DRIVERS AND SENSITIVITIES - SR and SRF OCBC remains systemically important to Singapore's economy and financial sector, as one of only three major domestic banks. The SR and SRF reflect Fitch's view of a very high probability of extraordinary state support, if needed, for OCBC. The Singapore government's strong ability to extend support is underpinned by its 'AAA' ratings. A change in the ability and propensity of the government to provide timely support would be negative for the SR and SRF. One development that could lead to such an outcome is the global initiative to reduce implicit state support available to banks. KEY RATING DRIVERS AND SENSITIVITIES - DEBT RATINGS The ratings on senior notes and the bank's commercial paper programme are the same as OCBC's Long-Term and Short-Term IDRs. This is because these instruments constitute direct, unsubordinated and senior unsecured obligations of the banks, and rank equally with all their other unsecured and unsubordinated obligations. A change in the IDRs would affect these issue ratings. The subordinated Lower Tier 2 notes are rated one notch below OCBC's 'aa-' VR to reflect their subordinated status and the absence of any going-concern loss-absorption features. The ratings on the preference shares are five notches below the bank's VR, reflecting the presence of subordination and going-concern loss-absorption mechanisms. The ratings of these securities are sensitive to changes in the VRs. Wing Hang Bank is Hong Kong's eighth-largest bank, with HKD214bn (USD28bn) of assets at end-2013. Meanwhile, OCBC is the second largest of the three Singapore banking groups by assets, at SGD338bn (USD267bn). The list of rating actions is as follows: OCBC Long-Term IDR of 'AA-' placed on RWN Short-Term IDR of 'F1+' placed on RWN Viability Rating of 'aa-' placed on RWN Support Rating affirmed '1' Support Rating Floor affirmed at 'A-' Senior unsecured rating of 'AA-' placed on RWN Rating on commercial paper programme of 'F1+' placed on RWN Rating on subordinated Lower Tier 2 notes of 'A+' placed on RWN Rating on preference shares of 'BBB' placed on RWN Contacts: Primary Analyst Mikho Irawady Associate Director +65 6796 7230 Fitch Ratings Singapore PTE Ltd 6 Temasek Boulevard #35-05 Suntec Tower Four Singapore 038986 Secondary Analyst Ambreesh Srivastava +65 6796 7218 Committee Chairperson Mark Young Managing Director +65 6796 7229 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com. Additional information is available at www.fitchratings.com. Applicable criteria, "Global Financial Institutions Rating Criteria", dated 31 January 2014, and "Assessing and Rating Bank Subordinated and Hybrid Securities", dated 31 January 2014, are available at www.fitchratings.com. Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria here Assessing and Rating Bank Subordinated and Hybrid Securities 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.

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.