July 5 (The following statement was released by the rating agency)
Fitch Ratings has placed Thailand-based Bank of Ayudhya Public Company Limited's
(BAY)'s Long-Term Issuer Default Rating (IDR) of 'BBB', Short-Term IDR of 'F3', National
Long-Term Rating of 'AA-(tha)', and Support Rating (SR) of '3' on Rating Watch Positive (RWP). A
full list of rating actions is provided at the end of this release.
The RWP follows the announcement on 2 July 2013 by the Bank of Tokyo-Mitsubishi
UFJ, Ltd. (BTMU, A/Stable) that it is planning to buy a majority stake of up to
75% in BAY, and Fitch expects that such ownership would result in high
probability of extraordinary support from BTMU for BAY.
Key Rating Drivers - IDRs, National Ratings, Senior Debt Rating, and
Subordinated Debt Rating
BAY's ratings and its Viability Rating reflect its standalone credit
fundamentals and factor in only ordinary support from BAY's existing 25%
shareholder, GE Capital International Holdings Corporation (GECIH).
BTMU is a wholly-own subsidiary of Mitsubishi UFJ Financial Group (MUFG), which
is the largest financial group in Japan both by asset and market share
(deposits: 20%, lending: 15%), with a well-established international presence.
BTMU's attempt to acquire BAY is in line with the group's offshore growth
strategy to expand into the Asian retail segment.
BTMU will launch a voluntary tender offer (VTO) for BAY shares in November 2013.
GECIH has agreed to sell its entire stake in BAY to BTMU, but BAY's original
shareholder, Rattanarak family, will keep its existing 25% stake. Prior to the
VTO, BTMU must obtain regulatory and corporate approvals, particularly from the
Bank of Thailand (BoT) and the Ministry of Finance for foreign ownership waiver
(limit of 25% by law). Due to the BoT's one presence policy, BAY and BTMU's Thai
branch must integrate after BTMU acquires a stake in BAY, even if the stake
amounts to less than 50%.
BAY's THB senior unsecured debt rating is placed on RWP since such debt are
rated the same level with the bank's National Rating, based on their status as
unsecured and unsubordinated obligations of the bank.
BAY's Basel II-compliant subordinated debt rating is also placed on RWP. They
are rated one notch below BAY's National Rating to reflect their subordination
in the capital structure, and Fitch believes that should parental support be
required, it is likely to extend to these subordinated debt instruments.
Rating Sensitivities - IDRs, National Ratings, Senior Debt Rating and
Subordinated Debt Rating
Acquiring at least a 50% stake is likely to lead to an upgrade of BAY's Long-
and Short-Term IDRs and National Rating by at least one notch. The extent of
uplift would depend on Fitch's assessment of BAY's strategic importance to and
integration with BTMU. However, any upgrade is unlikely to exceed two notches,
given the Country Ceiling is currently at 'A-' and foreign-owned domestic banks
are generally rated at one notch below their respective parents. The ratings are
likely to remain unchanged, if BTMU does not acquire a majority stake or does
not consolidate BAY.
BAY's senior unsecured and subordinated debt ratings will be affected by changes
to the bank's National Ratings.
Key Rating Drivers - Support Rating
The RWP on Support Rating reflects Fitch's expectation of a higher probability
of extraordinary support from its new institutional shareholder, if the
acquisition succeeds. Currently, the support rating reflects a moderate
probability of support from the sovereign based on its current systemic
importance to the domestic economy as a medium-sized bank with a reasonable
market share of 7%-8%.
Rating Sensitivities - Support Rating
The successful acquisition of a majority stake in BAY by BTMU is likely to lead
to an upgrade of Support Rating to '2', due to very high probability of
extraordinary support from its new long-term major shareholder.
BAY was established in 1945 and is Thailand's fifth-largest commercial bank by
assets and loans. GEICH, a subsidiary of General Electric Captial Corportion
Inc., holds a 25.3% stake, while the Ratanarak Group holds another 25%. The
bank's key subsidiaries are involved in auto finance, credit cards, consumer
finance, securities and fund management.
BAY's ratings are as follows:
- Long-Term IDR of 'BBB'; placed on RWP
- Short-Term IDR of 'F3'; placed on RWP
- Viability Rating 'bbb'
- Support Rating of '3'; placed on RWP
- Support Rating Floor 'BB+'
- National Long-Term Rating of 'AA-(tha)'; placed on RWP
- National Short-Term Rating 'F1+(tha)'
- National Long-term senior unsecured debt of 'AA-(tha)'; placed on RWP
- National Short-term senior unsecured debt 'F1+(tha)'
- National subordinated debt of 'A+(tha)'; placed on RWP