Hong Kong, September 02, 2014 -- Moody's Investors Service has affirmed the A3 issuer rating of CTBC
Financial Holding Co., Ltd. (CTBC Financial,
or, the group) and maintained its negative outlook. This
follows CTBC Financial's announcement that its subsidiary,
CTBC Life Insurance Co., Ltd. (CTBC Life, unrated)
will acquire 19.99% of ABC Life Insurance Co.,
Ltd. (ABC Life, unrated), a life insurer based in Beijing,
China, for TWD8.36 billion.
ABC Life is the 16th largest life insurance company in China, with
a market share of 0.7% in 2013. It distributes its
products mainly through the bancassurance channel, primarily through
the branches of Agricultural Bank of China (ABC, deposits A1/P-1
stable, bank financial strength rating D+/baseline credit assessment
baa3 stable), which owns 51% of the company. Its shareholders'
equity was RMB1.8 billion at June 30, 2014.
RATINGS RATIONALE
The affirmation reflects the fact that the transaction is small relative
to the whole group, as it represents only 3.8% of
CTBC Financial's shareholders' equity as at June 30,
2014. The transaction will be solely paid by internal resources,
and hence does not create additional pressure on the firm's financials.
In 2013, CTBC Financial injected TWD15 billion of capital into CTBC
Life, which can use the proceeds to fund the acquisition.
Therefore, this particular transaction will not affect the double
leverage ratio of the holding company, which stood at 105.2%
at June 30, 2014. CTBC Financial will account for this investment
as an equity-method investment in CTBC Life's consolidated
financial statements.
CTBC Life plans to inject around RMB 1.8 billion (TWD9 billion)
in total in the next three years to maintain the shareholding at 19.99%.
CTBC Financial will likely be able to fund this through internal resources
as the group has historically been receiving dividends from its subsidiaries,
mainly from CTBC Bank Co Ltd (deposits A2/P-1 negative, bank
financial strength rating C-/baseline credit assessment baa2 negative),
which made TWD21.5 billion in 2013. Even after the additional
capital injection, CTBC Financial's investment in ABC Life
should represent less than 7% of the group's total capital.
Nonetheless, Moody's considers that the ABC Life transaction
is another factor that is adding negative pressure to CTBC Financial's
ratings, reflected in the negative outlook. This was initially
largely driven by the group's acquisition of Tokyo Star Bank Limited
(unrated) completed in 2Q 2014. ABC Life has plans to grow its
business, which will require additional capital. Hence,
we expect that CTBC Financial will need to participate in such capital
injections in order to maintain its shareholding and commitment to the
Chinese market.
In this context, Moody's notes that, CTBC Financial
paid a substantial premium relative to the book value of ABC Life.
This supports the view that CTBC Financial is expecting significant growth
of ABC Life's business, which in turn will likely require
capital support from its shareholders, including CTBC Financial.
Further, the negative outlook on CTBC Financial continues to reflect
the execution risk with regards to the recent Tokyo Star Bank acquisition
completed in 2Q 2014. Tokyo Star Bank has a weaker business profile
than CTBC Bank and has a legacy of asset quality problems. While
CTBC Bank plans to reorient Tokyo Star Bank to a business model that focuses
on cross-border business between Japan and Greater China,
this will take time and involve some execution risk. In addition,
there is a potential drag on CTBC Bank's consolidated profitability due
to its management's plan to raise Tokyo Star Bank's provisioning coverage.
Finally, there is execution risk in CTBC Bank's plans to restore
its capital ratios to previous levels post-acquisition of Tokyo
Star Bank.
RATING DRIVERS
CTBC Financial's rating is unlikely to be upgraded, given the assigned
negative rating outlook.
On the other hand, its rating could be downgraded if: (1)
CTBC Bank's ratings are downgraded (2) it makes further acquisitions in
sectors that increase its consolidated risk profile, especially
if its double leverage ratio increases to more than 120% and/or
(3) if the acquisitions of Tokyo Star Bank or the investment in ABC Life
result in volatility in Group earnings or unexpected capital demands.
RATING METHODOLOGY
The methodologies used in this rating were Global Banks published in July
2014, and Global Life Insurers published in August 2014.
Please see the Credit Policy page on www.moodys.com for
a copy of these methodologies.
CTBC Financial Holding Co. Ltd. reported consolidated assets
of TWD3.5 trillion at June 30, 2014. It is headquartered
in Taipei, Taiwan.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides certain regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this rating action, and
whose ratings may change as a result of this rating action, the
associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
The first name below is the lead rating analyst for this Credit Rating
and the last name below is the person primarily responsible for approving
this Credit Rating.
Ginger Kao
Analyst
Financial Institutions Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Stephen Long
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Sally Yim
VP-Sr Credit Officer
Financial Institutions Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Moody's affirms CTBC Financial Holding's A3 issuer rating with a negative outlook