Bangkok--2 Dec--Fitch Ratings
Fitch Ratings has maintained the Rating Watch Positive on Bank of Ayudhya Public Company Limited's (BAY) 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'. A full list of BAY's ratings is provided at the end of this release. Since Fitch placed BAY on Rating Watch Positive in July 2013, there have been signs of progress in Bank of Tokyo-Mitsubishi UFJ, Ltd.'s (BTMU, A/Stable) plan to acquire the Thai bank. Thailand's Ministry of Finance and central bank have already granted permission for BTMU to hold more than 49.0% of BAY's shares, and to integrate its existing Bangkok branch with BAY after it acquires a majority stake in the Thai bank. BAY's shareholders have approved the transaction, and BTMU has commenced a Voluntary Tender Offer for BAY shares in the beginning of November 2013.
Although BTMU may secure a majority stake as soon as December 2013, consummation of the transaction, including details of the final stake and structure/strategy employed BTMU may take more than three months. It is only upon these milestones that Fitch would be in a position to resolve the Rating Watch and conclude the extent of upgrade merited in BAY's ratings.
KEY RATING DRIVERS
The Rating Watch Positive continues to reflect the probability that BTMU will become the majority shareholder in BAY. Fitch expects that the change would result in a high likelihood of support from BTMU to BAY, especially in terms of management and operational integration and funding support.
BTMU's potential maximum stake in BAY is 80%, and its eventual shareholding would depend on the results of the tender offer and the pricing for the transfer of BTMU's Bangkok branch to the Thai bank. BTMU is given 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.
RATING SENSITIVITIES
Fitch expects BAY's Long- and Short-Term IDRs and National Long-Term rating to be upgraded by up to two notches based upon the expectation of a high probability of extraordinary support from its new institutional shareholder. The extent of the upgrade would depend on our assessment of BAY's strategic importance to BTMU, which hinges on several factors, such as BAY's role in the group, BTMU's ownership, the extent the two companies are integrated, brand name sharing, etc.
For more information, see 'Fitch Places Thailand's Bank of Ayudhya on Rating Watching Positive', dated 5 July 2013 available on 'www.fitchratings.com'
BAY's ratings are as follow:
- Long-Term IDR of 'BBB'; RWP
- Short-Term IDR of 'F3'; RWP
- Viability Rating of 'bbb'
- Support Rating of '3'; RWP
- Support Rating Floor of 'BB+'
- National Long-Term Rating of 'AA-(tha)'; RWP
- National Short-Term Rating of 'F1+(tha)'
- National long-term senior unsecured debt of 'AA-(tha)'; RWP
- National short-term senior unsecured debt of 'F1+(tha)'
- National subordinated debt of 'A+(tha)'; RWP