Jan 28 (The following statement was released by the rating agency)
Fitch Ratings has upgraded Bank of Ayudhya
Public Company Limiteda€™s (BAY) Long-Term Issuer Default Rating (IDR) to a€˜A-a€™
from a€˜BBBa€™ and its National Long-Term Rating to a€˜AAA(tha)a€™ from a€˜AA-(tha)a€™. The
Outlook is Stable. A full list of BAYa€™s ratings is provided at the end of this
commentary. Fitch has removed the ratings from Rating Watch Positive (RWP),
where they had been placed on 5 July 2013.
The agency has also assigned BAYa€™s upcoming issue of senior unsecured bonds of
up to THB12bn National Long-Term ratings of a€˜AAA(tha)a€™. The proceeds of the
bonds, which mature in two and/or three years, will be used for refinancing and/
or general corporate purposes.
KEY RATING DRIVERS
The upgrades of BAYa€™s IDRs and National Ratings reflect Fitcha€™s belief of an
extremely high probability of extraordinary support from its new institutional
shareholder, Bank of Tokyo-Mitsubishi UFJ, Ltd. (BTMU, A/Stable), if needed.
BTMU recently acquired a controlling stake of 72.01% in BAY, and its
shareholding is expected to further increase to 76.44% once the integration of
BAY with BTMUa€™s Bangkok branch is completed by the end of 2014.
BAYa€™s Long-Term IDR is one notch below BTMUa€™s Long-Term IDR. This is based on
our assessment that BAY is of strategic importance to BTMU and its ultimate
parent, Mitsubishi UFJ Financial Group (MUFG, A/Stable). The acquisition of BAY
will support BTMUa€™s strategy of expansion in Southeast Asia. Among BTMUa€™s
subsidiaries, BAY is the largest contributor of gross profit in Asia, and the
second-largest contributor globally after US-based UnionBanCal Corporation
BTMU has effective control of BAYa€™s board of directors and management through
the appointment of the directors and key management, including the chief
executive officer. BTMU has a 10-year grace period after acquiring BAY to inject
additional capital. After that period, BTMU could be restricted from purchasing
new shares in BAY if its holding is above 49%. While this could result in
dilution in the long-term, Fitch believes that the regulators are unlikely to
prevent an injection of additional capital by BTMU if that is required in the
event of financial distress at BAY.
The Stable Outlook on BAYa€™s Long-Term IDR is consistent with that of its parent.
The support rating of a€˜1a€™ reflects Fitcha€™s expectation of an extremely high
probability of extraordinary support from BTMU.
The Support Rating Floor is withdrawn since we believe that the institutional
support is more likely to be called upon first, with sovereign support
potentially as a back stop.
The senior notes are rated at the same level as BAYa€™s National Long-Term Rating
of a€˜AAA(tha)a€™ as they represent unsecured and unsubordinated obligations of the
The legacy Basel II subordinated debt are rated at a€˜AA+(tha)a€™, one notch below
BAYa€™s National Long-Term Rating of a€˜AAA(tha)a€™ to take into account their
subordination in the capital structure.
The short-term senior unsecured debentures program is consistent with BAYa€™s
Short-Term National Rating of 'F1+(tha)', as the debentures represent unsecured
and unsubordinated obligations of the bank.
RATING SENSITIVITIESa€“ IDR, Support Rating and National Ratings
An upgrade is unlikely given BAYa€™s IDR is currently rated at the Country Ceiling
of a€˜A-a€™, while its National Long-Term Rating is the highest on the national
scale. A negative rating action on BTMUa€™s IDRs would lead to similar rating
action on BAYa€™s IDR, Support Rating and National Long-Term Rating. A negative
rating action could occur if there is a reduction in BTMUa€™s shareholding in or
in its propensity to provide support to BAY.
A negative rating action on BAYa€™s National Ratings would have a similar rating
impact on its senior notes and subordinated notes.
BAY is Thailand's fifth-largest commercial bank by assets, with around 7% share
of total assets in the market at end-September 2013. However, after its
integration with BTMU, Bangkok branch, its market share should increase to
around 10%. BAYa€™s ultimate parent, MUFG, BTMUa€™s single parent, is the largest
financial group in Japan by assets with the most extensive overseas network.
A full list of BAYa€™s rating actions follows:
- Long-Term IDR upgraded to a€˜A-a€™ from a€˜BBBa€™; Outlook Stable
- Short-Term IDR upgraded to a€˜F2a€™ from a€˜F3a€™
- Support Rating upgraded to a€˜1a€™ from a€˜3a€™
- Support Rating Floor withdrawn from a€˜BB+a€™
- National Long-Term Rating upgraded to a€˜AAA(tha)a€™ from a€˜AA-(tha)a€™; Outlook
- National Short-Term Rating affirmed at a€˜F1+(tha)a€™
- National long-term senior unsecured debt rating upgraded to a€˜AAA(tha)a€™ from
- National short-term senior unsecured debt rating affirmed at a€˜F1+(tha)a€™
- Legacy Basel II subordinated debt upgraded to a€˜AA+(tha)a€™ from a€˜A+(tha)a€™
- An upcoming issue of THB senior unsecured bonds assigned at a€˜AAA(tha)a€™
The rating that is unaffected from this review is as follows:
- Viability Rating of a€˜bbba€™