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

Stocks and Financial Services Press Releases Monday April 3, 2017 18:36
Bangkok--3 Apr--Fitch Ratings

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

KEY RATING DRIVERS

The notes are rated one notch below the bank's National Long-Term Rating, to reflect their subordinated status and increased loss-severity risk compared with senior unsecured instruments. Key terms of the notes include a non-viability trigger for loss-absorption (defined as emergency capital assistance from an empowered government agency), with a partial rather than a mandatory full write-down. 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 Long-Term Rating is used as the anchor rating because Fitch believes that this is the best indicator for the bank's non-performance risk (that is, reaching the point of non-viability). BAY's National Ratings reflect Fitch's belief that it is a strategically important subsidiary of 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, with high levels of integration.

RATING SENSITIVITIES

Any change in the National Ratings of BAY would have a similar effect on the ratings of the notes. No upside is possible to the National Ratings as this is already at the top end of the scale. However, a downgrade of the Long-Term Issuer Default Rating of BTMU could lead to negative rating action on BAY, including the National Long-Term Rating.

BAY's ratings could also be negatively affected 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 to occur 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 Stable
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)'
Basel III Tier 2 subordinated debt: 'AA+(tha)'

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