Bangkok--Mar 14--Moody's Investors Service
Moody's Investor's Service has assigned a rating of (P)Ba1 to Thai Military Bank's (TMB's) proposed junior subordinated debt notes, due 2015. The rating reflects TMB's systemic importance, its improving, but still weak financial fundamentals, as well as the structure of this subordinated issue. The ratings outlook is stable.
Note that this rating is subject to the receipt of final documentation,
the terms and conditions of which have not changed in any material way from the draft documents reviewed by Moody's.
As with many Upper Tier II capital-qualifying subordinated debt issues,
TMB's junior subordinated securities include provisions that allow the borrower to defer payment of interest, under certain circumstances and prohibiting the payment of principal and interest under others. If implemented, such provisions (while not legally constituting an event of default) could result in payment terms appreciably different from senior securities. These distinctions are reflected in the two notch rating differential between TMB's Baa2 rating on senior obligations and this Ba1 rated junior subordinated debt issue.
While, Moody's considers TMB to possess sufficient financial flexibility
(supplemented as it is by regulatory support) to avoid, in most circumstances, deferring interest payments on its junior subordinated debt, the solvency conditions required by Thailand's regulators in Upper Tier II capital-qualifying debt are particularly strict.
Specifically, the bond indenture specifies that in addition to the usual
solvency requirement, "No principal or interest shall be payable in respect of the Notes if the Bank of Thailand has intervened in the Bank's operations by ordering a capital write down and increase."
While Moody's expects regulatory support will ultimately benefit all
creditor classes, this provision could affect the timeliness of such benefit reaching junior subordinated creditors. Theoretically,non-payment after an intervention could persist until such time as common dividends are reinstated. Having said that, Moody's pointed out that if current positive economic and bank performance trends persist, it will become progressively more unlikely that TMB would require such assistance.
Thai Military Bank, headquartered in Bangkok, is Thailand's fifth largest bank, with over 450 branches countrywide. It had total assets of THB 669
billion (US$ 17 billion) on December 31, 2004. The Thai military's aggregate stake in TMB has declined significantly since the Asian financial crisis of 1997 and now stands at only 5.4%. The Thai Ministry of Finance is the largest shareholder with 31.2%. Singapore's DBS Bank holds 16.1%.
Thai Military Bank's other ratings are:
Long and short-term foreign currency deposits of Baa2 and Prime-2, respectively; Long-term foreign currency subordinated debt of Baa3; and Bank Financial Strength (BFSR) of E+. The BFSR has a positive outlook, while all debt and deposit ratings carry a stable outlook.
Singapore
Deborah Schuler
VP - Senior Credit Officer
Financial Institutions Group
Moody's Singapore Pte Ltd.
Telephone: 65-6398-8300
Facsimile: 65-6398-8301 End.