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RPT-Fitch: No Rating Impact on CTBC Group from Manulife Purchase
August 2, 2013 / 6:57 AM / 4 years ago

RPT-Fitch: No Rating Impact on CTBC Group from Manulife Purchase

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Aug 2 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings says that CTBC Financial Holding Co., Ltd.'s (CFHC) acquisition of Manulife Financial Corporation's (Manulife, A/ Outlook Negative) Taiwanese unit for TWD724m has no rating impact on CFHC and its subsidiaries. This is because of the Taiwanese insurance unit's small asset size, which at TWD38.8bn at end-Q113, is less than 2% of CFHC's consolidated assets.

The acquisition highlights CFHC's growth ambition in life insurance and Fitch believes that the group has a strong willingness to provide financial support to the expansion of its life insurance operations in order for the latter to maintain a sound credit profile. Its subsidiary CTBC Life Insurance Co., Ltd. (CLI) will assume the life insurance-related obligations of Manulife's Taiwanese operations following the completion of the transaction, expected by end-2013 after receiving regulatory approvals.

The acquisition will strengthen CLI's market position and diversify its distribution channel by adding tied agents. CLI's pro-forma market share would be 2.1% in 2012 by total premiums underwritten with combined assets of TWD194bn at end-Q113, up from TWD156bn. Investment risk is manageable as the Taiwanese unit mainly invests in government bonds (57% of invested assets at end-Q113), followed by overseas investment-grade fixed-income securities (about 25% of the total).

Fitch believes that the associated financial risk arising from the CLI acquisition is manageable given CFHC's current financial flexibility. The group has sought to boost its capital in the past three years including through solid internal capital generation, rights issues of TWD11.6bn in April 2012 and TWD20bn in April 2013 and the potentially sizeable capital gain from its plan to dispose of its old headquarters building in 2014. The holding company's double leverage ratio remained low at 99% at end-Q113 (end-2010: 97%). The statutory sum-of-parts capital adequacy ratio increased to 149% at end-Q113 (end-2010: 118%), indicating about USD1.7bn excess capital above the regulatory minimum of 100%. The group's principal operating subsidiary CTBC Bank Co., Ltd. is well capitalised with a Fitch core capital ratio of 11% at end-Q113.

However, Fitch expects CFHC to remain acquisitive, as the group aims for growth of commercial banking operations in Asia Pacific and expands into non-banking services such as life insurance, given an overbanked Taiwan. The rating implications of potential acquisitions would mainly depend on the extent of the impact on the group's consolidated earnings quality and capital buffer relative to its risk profile stemming from any such acquisitions.

CFHC's subsidiaries are CTBC Bank Co., Ltd., CLI and CTBC Securities Co., Ltd.

The list of ratings is as follows:

CTBC Financial Holding Co., Ltd.:

- Long-Term IDR at 'A'; Outlook Stable

- Short-Term IDR at 'F1'

- National Long-Term rating at 'AA+(twn)'; Outlook Stable

- National Short-Term rating at 'F1+(twn)'

- Viability Rating at 'a'

- Subordinated debt rating at 'A+(twn)'

CTBC Bank Co., Ltd.:

- Long-Term IDR at 'A'; Outlook Stable

- Short-Term IDR at 'F1'

- National Long-Term rating at 'AA+(twn)'; Outlook Stable

- National Short-Term rating at 'F1+(twn)'

- Viability Rating at 'a'

- Support Rating at '3'

- Support Rating Floor at 'BB+'

- Subordinated bonds' Long-term rating at 'A-' and National Long-term rating at 'AA(twn)'

- Perpetual cumulative TWD subordinated bonds' Long-term rating at 'BBB' and National Long-term rating at 'A+(twn)'

- Perpetual cumulative USD subordinated bonds' Long-term rating at 'BBB'

CTBC Life Insurance Co., Ltd.:

- Insurer Financial Strength (IFS) Rating at 'A'; Outlook Stable

- National IFS Rating at 'AA+(twn)'; Outlook Stable

CTBC Securities Co., Ltd.:

- Long-Term IDR at 'A'; Outlook Stable

- Short-Term IDR at 'F1'

- National Long-Term rating at 'AA+(twn)'; Outlook Stable

- National Short-Term rating at 'F1+(twn)'

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