Fitch Rates Bank of Ayudhyas Basel III Tier 2 THB Notes at #AA+(tha)

Stocks and Financial Services Press Releases Tuesday July 12, 2016 17:26
Bangkok--12 Jul--Fitch Ratings

Fitch Ratings (Thailand) has today assigned Bank of Ayudhya Public Company Limited's (BAY; AAA(tha)/Negative) upcoming issue of Thai baht-denominated Basel III-compliant subordinated unsecured notes a National Long-Term Rating of 'AA+(tha)'. The debentures, which will be included in the bank's Tier 2 capital, will have a tenor of 10 years and six months, with an option to redeem after five years. The total issue size will be up to THB10bn.

KEY RATING DRIVERS
The notes are rated one notch below the bank's National Long-Term Rating to reflect their subordinated status and higher loss-severity risk compared to senior unsecured instruments.

Key terms of the notes include a partial rather than a mandatory full write-down, and a non-viability trigger for loss absorption (which is defined as emergency capital assistance from an empowered government agency). The notes do not have going-concern loss absorption features and hence no additional notching for non-performance risk has been applied.

BAY's National Ratings reflect Fitch's belief that it is a strategically important subsidiary of its parent, the Bank of Tokyo-Mitsubishi UFJ, Ltd. (BTMU; A/Negative). BTMU holds 76.9% of BAY, and the Thai bank is a key part of the parent's strategy for south-east Asia. Fitch believes that the National Long-Term Rating is the best indicator of the bank's risk of becoming non-viable, and hence is appropriate for use as the anchor rating to the subordinated notes.

RATING SENSITIVITIES

Any change in the National Ratings of BAY would similarly affect the ratings of the notes. No upside is possible to the National Ratings as it is at the top end of the scale. However, a downgrade of the Long-Term Issuer Default Rating of BTMU could lead to negative rating actions on BAY, including on the National Long-Term Rating. BTMU's Outlook was revised to Negative on 16 June 2016 due to a similar revision at the Japanese sovereign (seeFitch Revises Outlook for Japanese Financial Institutions to Negative).

BAY's ratings could also be negatively impacted if BTMU shows a reduced propensity to support BAY – which may, for example, be seen via a significantly reduced shareholding or reduction in operational integration. However, Fitch views that this as unlikely in the medium term.

BAY's other ratings are not affected, and are as follows:
Long-Term Issuer Default Rating: 'A-'; Outlook Negative
Short-Term Issuer Default Rating: 'F2'
Viability Rating: 'bbb'
Support Rating: '1'
National Long-Term Rating: 'AAA(tha)'; Outlook Negative
National Short-Term Rating: 'F1+(tha)'
National long-term rating on senior unsecured debt: 'AAA(tha)'
Rating on Legacy Basel II subordinated debt: 'AA+(tha)'

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