Bangkok--13 Jun--Fitch Ratings
Fitch Ratings has assigned an expected ‘BBB-(EXP)’ rating to Krung Thai Bank Public Company Limited’s (KTB; BBB/Stable) proposed US dollar-denominated Basel III-compliant Tier 2 subordinated notes under the bank’s USD2.5bn euro medium-term note (MTN) programme. The notes will be issued out of KTB’s Cayman Islands branch, and are the first publicly-transacted US dollar-denominated Basel III-compliant Tier 2 subordinated notes out of Thailand.
The final rating is subject to the receipt of final documentation conforming to information already received.
KEY RATING DRIVERS
Fitch’s typical anchor rating for Basel III Tier 2 securities is the issuer's Viability Rating, which does not factor in any extraordinary state support for this type of instrument. However, the anchor that is used could be a support-driven Issuer Default Rating (IDR) if Fitch views that there would be an extremely strong likelihood of state action to prevent non-viability,
In this case, Fitch views that there would be pre-emptive equity injections by the Thai government to maintain KTB as a going concern, without triggering non-viability. Hence its support-driven IDR at ‘BBB’ is the rating that best reflects the risk of the bank becoming non-viable, and is used as the anchor for the Basel III Tier 2 notes.
KTB is 55%-held by the Thai government’s Financial Institutions Development Fund. It is the only state-owned commercial bank, with no prospects of any significant changes in the shareholding structure. KTB has close operational links with the Finance Ministry, and acts as the main payments and cash management provider to the government. The bank has also previously played a quasi-policy role to support government initiatives and activities, and although KTB has become increasingly commercial in its focus, we expect the bank to be called upon to perform policy functions in future, if necessary.
The Basel III Tier 2 notes are rated one notch below the anchor rating to reflect their higher loss-severity risk relative to senior unsecured instruments arising from their subordinated status.
Key terms of the notes include a non-viability trigger (defined as emergency capital assistance from the central bank or other empowered government agency), with a partial rather than mandatory full write-down feature. The Tier 2 notes would be written down after any outstanding Additional Tier 1 securities with loss-absorption features have been fully written off or converted to equity, and on a pari passu basis with all other Tier 2 loss absorbing instruments of the issuer.
Rating Sensitivities
Any change in KTB’s IDR would have an impact on the rating of these notes. KTB’s IDR is driven by its Support Rating Floor, and any material shift in the ability or propensity of the Thai government to support KTB would have an impact on the IDR. Any reduction in the strategic importance of KTB to the Thai authorities could lead to a lower rating on the IDR and on the notes.
The other ratings of KTB are unaffected and are as follows:
Long-term IDR: ‘BBB’; Outlook Stable
Short-term IDR: ‘F3’
Viability Rating: ‘bbb-’
Support Rating: ‘2’
Support Rating Floor: ‘BBB’
National Long-Term Rating: ‘AA+(tha)’; Outlook Stable
National Short-Term Rating: ‘F1+(tha)’
Senior unsecured USD 2.5bn EMTN programme: ‘BBB’
Long-term foreign currency senior unsecured notes: ‘BBB’
International rating for hybrid Tier 1 securities: ‘B’
National THB 30bn Short-Term Debenture Programme: 'F1+(tha)'
National long-term subordinated debt: 'AA(tha)'
National rating for hybrid Tier 1 securities: ‘BBB(tha)’