Bangkok--4 Jun--Moody's
Moody's Investors Service has downgraded TMB Bank Public Company Limited's (TMB, D-/Baa2/P-2) Hybrid Tier 1 securities to B1/stable outlook from Ba2/stable outlook. All other ratings are unaffected.
"Moody's rating action reflects its heightened concerns over possible non-payment by TMB of the interest for July 2007 on its US$200 million perpetual non-cumulative Tier-1 securities," says Karolyn Seet, a Moody's Analyst.
"However, while the Bank of Thailand (BoT) had made clear its willingness to allow payment of the interest for January 2007, despite TMB's lack of distributable income at the time, it is now taking the official stance that interest payments should not be allowed if TMB incurs a loss in the relevant accounting period," adds Seet.
According to the securities' terms, if TMB meets, or is caused by any interest payment on the securities to meet, the Payment Limitation Condition on any Interest Payment Date, it will not be obliged to make an interest payment. In such a case, no interest will be due or payable on this Interest Payment Date. Such non-payment will not constitute a default by TMB for any purposes. The interest payment due in July amounts to approximately Bt 240 billion (US$7.5 million). The Payment Limitation Condition means, for any Interest Payment Date, that at the end of the 6-month period, or fiscal year that includes such a date, TMB expects that net profit will be less than or equal to zero.
Therefore, TMB's ability to make the payment depends on its first-half earnings performance and the size of the additional problem loan write-downs it must take under Phase II and III of the implementation of IAS39.
Given the weak state of parts of the Thai economy, Moody's considers it distinctly possible, although not probable, that TMB will report a loss for the first half. In that event, it will require BoT's permission to make the interest payment for July 2007.
In view of BoT's stance to disallow TMB making its July 2007 coupon payment, if the bank should make a loss, Moody's has downgraded the securities by two notches to B1 to reflect the increased risk of non-payment. However, in January 2007, BoT had considered mitigating factors, such as TMB's adequate liquidity, capital adequacy ratios, and capital-raising plans, and allowed it to make its January interest payment despite a loss for fiscal 2006.
The rating outlook is stable at B1, despite the fact that few if any of the non-cumulative payments will be skipped, because of the heightened uncertainty regarding the extent to which anticipated strong regulatory support for TMB depositors would also be available to deeply subordinated creditors, such as the holders of these Tier-1 capital qualifying
securities. Further stress testing has led Moody's to believe that the uncertain economic and political situation in Thailand may exert downward pressure on TMB's full-year results for 2007 and, in particular, its asset quality. As a result, in a worst-case scenario, the bank may miss its July 2007 interest payment and, to a lesser extent, its January 2008 payment.
The stable outlook also reflects the particular trigger for non-payment used in this instrument and the relatively high likelihood that fundamentally weak banks (TMB has a bank financial strength rating of only D-) may report a loss in a given year.
Headquartered in Bangkok, Thailand, TMB had total assets of about Bt 677 billion (US$ 21 billion) as at March 31, 2007. The Thai military's aggregate stake in TMB has declined significantly since the Asian financial crisis of 1997 and currently stands at about 3.45%. The Thai Ministry of Finance is the largest shareholder with 31.2%. Singapore's DBS Bank holds 16.1%.
The other ratings -- which are unchanged -- are: TMB Bank Public Company Limited -- Bank financial strength rating of "D-" TMB Bank Public Company Limited -- Foreign currency long-term/short-term deposit ratings of Baa2/P-2.
Singapore
Karolyn C. Seet
Analyst
Financial Institutions Group
Moody's Singapore Pte Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (65) 6398-8308
Singapore
Beatrice Woo
VP - Senior Credit Officer
Financial Institutions Group
Moody's Singapore Pte Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (65) 6398-8308