Moody's continues review of EON Bank for possible upgrade

Stocks and Financial Services Press Releases Tuesday December 14, 2010 10:46
Singapore--14 Dec--Asian Banker

Moody's Investors Service is continuing its review for possible upgrade the Baa2/P-3 foreign currency long-term/short-term deposit ratings and D Bank Financial Strength Rating (BFSR) of EON Bank Berhad (EBB), which maps to a Ba2 baseline credit assessment.

The rating review was initiated on April 7, 2010 following EON Capital's Board decision to call an extraordinary general meeting (EGM) to seek shareholder approval of the proposed acquisition of its assets and liabilities by Hong Leong Bank (HLB; A3/P-1/C-). The rating review was later extended on August 23 2010 due to the postponement of the EGM to September 30 2010.

EBB is the main asset of EON Capital.
“The extension of the review of EBB's ratings is due to the delayed consummation of the proposed deal," says Karolyn Seet, a Moody's Assistant Vice President.
"The proposed deal has been deferred because on November 27, HLB, for the second time, extended its deadline to 30 April 2011 from 30 November for EON Capital Bhd to accept its RM5.06 billion takeover offer.

Contributing to the delay is Primus Pacific Limited -- EON Capital's largest shareholder -- which had in October filed a summons with the High Court asking that resolutions reached at a September 27, 2010 shareholders meeting be declared null and void, citing technicalities.

EON Capital will only know on January 19, 2011, if the shareholders' vote in favor of HLB's takeover stands," says Seet.

"Separately, issues also remain involving another lawsuit filed against certain shareholders and directors of EON Capital by Primus Pacific Limited. The hearing of this case is still ongoing with the next session scheduled to resume in February 2011.

Moody's notes that all other necessary shareholder and regulatory approvals have already been granted," adds Seet.

In extending the ratings review, Moody's is not expressing a judgment regarding the merits of the outstanding lawsuits. The review for possible upgrade is underpinned by Moody's view that the proposed acquisition, if successful, would be credit positive for EBB as it would become part of alarger and more systemically significant bank.

The merger of the two banks would move them from their current positions to the fourth largest in the system. Currently, in terms of asset size, EBB is the seventh largest and HLB is the sixth largest of nine local banks in Malaysia.

Furthermore, EBB would likely benefit from HLB's comfortable funding and asset quality; a situation which would collectively mitigate the risk of a weakening of capital post-acquisition.
If the proposed deal is called off, EBB's ratings would likely be confirmed with a stable outlook, all else being equal.
Moody's expects to conclude on the review for upgrade once there is greater clarity on the outcome of the proposed acquisition.
The last rating action on EBB was taken on August 23, 2010 when its foreign currency long-term/short-term ratings of Baa2/P-3 and BFSR of D was placed on review for possible upgrade.

The principal methodologies used in rating EBB were "Bank Financial Strength Ratings: Global Methodology," February 2007 and "Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology," March 2007, which can be found on in theRating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating these issuers can also be found in the Rating Methodologies sub-directory on Moody's website.

EBB, headquartered in Kuala Lumpur, reported consolidated assets of RM46.6 billion as at December 31, 2009. (December 14 2010)--

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