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May 6 (The following statement was released by the rating agency)
Fitch Ratings says Bendigo and Adelaide Bank Limited's (BEN, A-/Stable) ratings are unaffected by the acquisition of Rural Finance Corporation Victoria (Rural Finance), as the bank's capital and liquidity positions are unlikely to materially weaken as a result of the deal. At the same time, BEN's franchise in the Victorian agriculture market will improve through the acquisition. The AUD1.8bn transaction was announced on 5 May 2014 and is subject to regulatory approval.
The purchase price is to be funded through a fully underwritten AUD230m institutional share placement, an additional share purchase plan of up to AUD50m which is not underwritten, wholesale funding, retail deposits and surplus liquidity. Capital and liquidity positions are expected to remain robust post acquisition, supporting BEN's ratings. Any significant weakening in BEN's funding and liquidity positions could lead to a negative rating action as indicated in Fitch's rating commentary dated 28 November 2013.
The acquired business and loan book will provide the bank with a larger footprint in the Victorian agriculture market while also diversifying the bank's agriculture exposure. The acquired loan book accounts for less than 3% of BEN's total assets as at 31 December 2013 but will allow the bank to fast-track its strategic franchise improvement plans. The acquired business is high-margin, with a proven strong track record in asset quality.
Cost and revenue synergies may be possible given some location overlap, and BEN's ability to distribute its banking products and services to Rural Finance customers. However, BEN is committed to maintaining all non-executive staff and the brand for at least three years.