November 23, 2016 / 10:21 AM / 3 years ago

Fitch Rates Dah Sing Bank's Subordinated Notes Final 'BBB'

(The following statement was released by the rating agency) HONG KONG, November 23 (Fitch) Fitch Ratings has assigned Hong Kong-based Dah Sing Bank's (DSB; BBB+/Stable) Basel III-compliant Tier-2 subordinated notes a final 'BBB' rating. The USD250m notes will be issued on 30 November 2016 under DSB's USD2bn euro medium-term note programme. The notes will have maturity of 10 years and will be callable by DSB after five years and semi-annually thereafter. The notes will carry a fixed interest rate of 4.25% for the first five years and reset semi-annually thereafter, with the interest rate based on the five-year U.S. Treasury Rate plus 255bp. They will be issued to institutional investors and will be listed on the Hong Kong Stock Exchange. They include a non-viability clause and will qualify as Tier-2 capital upon approval from the Hong Kong Monetary Authority (HKMA). Fitch expects the bank to use the proceeds to support business expansion and replace legacy obligations that will become callable in 2017. The assignment of the final rating follows the receipt of the final documents conforming to information already received and is in line with the expected rating assigned on 22 November 2016. KEY RATING DRIVERS Fitch rates the notes one notch below DSB's Viability Rating, which equivalent to its Issuer Default Rating as we do not expect the bank to benefit from sovereign support in times of stress. The one-notch difference reflects the notes' below-average recovery prospects relative to senior unsecured instruments, as well as the contractual partial loss feature. The notes could be written down or converted into equity, in full or in part, if the HKMA considers this step necessary to restore the bank's viability. We apply no additional notching for non-performance as the point of non-viability broadly coincides with what we express in the anchor rating. We expect the new issue to increase DSB's total capital adequacy ratio by 1.1-1.3pp (end-1H16: 16.7%), which would help offset the impact of the regulatory phase-out or an outright call of Tier-2 instruments without non-viability clauses. RATING SENSITIVITIES The rating on the notes is sensitive to any changes in DSB's Viability Rating, which in turn is sensitive to the performance of its China-related activities, maintenance of sufficient loss-absorption buffers and stringent risk controls. The other ratings of DSB remain unchanged and are as follows: Long-Term IDR: 'BBB+'; Outlook Stable Short-Term IDR: 'F2' Viability Rating: 'bbb+' Support Rating: '5' Support Rating Floor: 'No Floor' Lower Tier-2 subordinated debt without non-viability clauses: 'BBB' Subordinated notes with non-viability clauses: 'BBB' Perpetual junior subordinated debt without non-viability clauses: 'BB+' Contact: Primary Analyst Ivan Lin, CFA Associate Director +852 2263 9984 Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road Central Hong Kong Secondary Analyst Shanice Lu Analyst +852 2263 9924 Committee Chairperson Mark Young Managing Director +65 6796 7229 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. 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