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Fitch: APAC Basel III Issuance at the Forefront
March 13, 2014 / 4:26 AM / 4 years ago

Fitch: APAC Basel III Issuance at the Forefront

(The following statement was released by the rating agency) SINGAPORE/LONDON, March 12 (Fitch) The issuance of Tier 2, Basel III capital instruments by Asia-Pacific (APAC) financial institutions is gathering momentum, says Fitch Ratings. Today's announcement of Mizuho's Tier 2 hybrid bond will be the first cross-border Basel III deal out of Japan. This follows the first issue out of Singapore - UOB's USD800m deal earlier in the week. We are expecting additional cross-border deals from issuers in Japan, Australia, Singapore and Hong Kong. The trends inAPAC follow a growing level of issuance by European financial institutions in recent weeks, and is motivated by varying drivers across the region. For first-time investors in APAC, these deals highlight key differences in frameworks across markets - and, as a consequence, the ratings approach towards these issues is also likely to vary. For example, Japanese legislation allows for pre-emptive support from the authorities when serious systemic disruption is a possibility. In our view, this means that the point-of-non-viability (PONV) is unlikely to be a trigger for systemic complex financial institutions. Therefore, we are likely to notch Tier 2 hybrid debt issues from the Issuer Default Ratings of such Japanese issuers, rather than their Viability Ratings (should they be lower). Another difference is around the loss-absorption features when PONV is triggered. Once again, the requirement in Japan is for a full write-down for Tier 2 when PONV is triggered. Meanwhile, in other markets like Australia, Singapore and Hong Kong, partial write-downs or conversion into equity is also a possibility. This means that in Japan, we notch twice from the anchor rating for loss severity, while in other countries if loss severity is potentially relatively lower we notch only once. The replacement of legacy Basel II debt instruments is a key reason for heightened issuance of new-style capital instruments across APAC. These older instruments have to be steadily phased out from a regulatory capital perspective. Japanese banks in particular also need to support their foreign-currency funding and capital requirements to sustain their growing international profile. The big three Japanese banks continue to target overseas growth, given the very low interest-rate environment in their home market and the lack of pick-up in domestic demand. Finally, a favourable pricing environment also appears to have prompted the recent surge in issuance interest. Demand appears to have been boosted by greater certainty about the continuing economic recovery in the EU and the US, and the widening of the investor base. Contact: Mark Young Managing Director, Financial Institutions Tel: +65 6796 7229 Cynthia Chan Senior Director, Fitch Wire Tel: +44 20 3530 1655 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. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. Applicable Criteria and Related Research: 2014 Outlook: Asia-Pacific Banks 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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