RPT-Fitch Rates FirstRand Bank's Basel III Tier 2 Subordinated Notes 'BBB-(EXP)'

Tue Jun 3, 2014 8:52am EDT

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June 3 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has assigned FirstRand Bank Limited's (FRB) proposed ZAR-denominated Basel III-compliant Tier 2 subordinated notes an expected Long-term rating of 'BBB-(EXP)' and an expected National Long-term rating of 'AA-(zaf)(EXP)'. The notes will be issued under the bank's ZAR80bn domestic medium-term note (DMTN) programme.

The final ratings are subject to the receipt of final documentation conforming to information already received.

KEY RATING DRIVERS

The Basel III-compliant Tier 2 securities are rated one notch below FRB's 'bbb' Viability Rating (VR) to reflect their higher loss-severity risk relative to senior unsecured debt due to their subordinated status.

The notes qualify as regulatory Tier 2 regulatory capital under Basel III, which was introduced in South Africa on 1 January 2013. The notes contain contractual loss absorption features which will be triggered at the point of non-viability of the bank. These features will be replaced by a statutory loss absorption regime when it is implemented in South Africa. According to the terms, the notes can be written off upon the occurrence of a trigger event at the option of the South African regulator. The notes rank subordinated to senior unsecured instruments.

No additional notching has been ascribed for non-performance risk, which Fitch regards as minimal relative to the VR assigned. The notes will not qualify for equity credit under Fitch's criteria.

RATING SENSITIVITIES

A change in FRB's VR will have an impact on the securities' rating. FRB's other ratings are as follows:

Long-Term Issuer Default Rating 'BBB'; Outlook Stable

Short-Term Issuer Default Rating 'F3'

National Long-Term Rating: 'AA(zaf)'; Outlook Stable

National Short-Term Rating: 'F1+(zaf)'

Viability Rating 'bbb'

Support Rating '3'

Support Rating Floor 'BB+'

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