Singapore, April 02, 2014 -- Moody's Investors Service has placed the long-term debt,
deposit and standalone ratings of Oversea-Chinese Banking Corporation
Ltd (OCBC) on review for downgrade. The rating action follows OCBC's
announcement on 1 April that it has made a general offer to acquire 100%
of Wing Hang Bank's shares.
The full list of affected ratings, including the deposit ratings
of Bank of Singapore, is presented at the end of this press-release.
For ratings of Wing Hang Bank, please refer to this issuer's
page on www.moodys.com.
RATINGS RATIONALE
RATIONALE BEHIND REVIEW FOR DOWNGRADE
The main reason for the review is the execution risk associated with the
financing of such a large acquisition. Moody's understands
that OCBC plans to finance the transaction through a combination of debt
and equity. The success of the new capital raising is important
for OCBC if it is to maintain capitalization on par with similarly rated
peers.
On a pro-forma basis, OCBC's Tier 1 ratio would decrease
to around 11.0% from 14.5% in December 2013,
if it acquires 100% of Wing Hang Bank without raising any equity.
The negative pressure on OCBC's Tier 1 ratio will come from SGD2.8
billion goodwill related to the acquisition, because the offer price
is equivalent to 1.77 times the December 2013 net book value of
Wing Hang Bank.
Moreover, OCBC's Tier 1 will decrease because of higher risk
weighted assets. After the transaction, the combined entity
will have risk weighted assets of SGD172 billion, relative to SGD150
billion for OCBC on a standalone basis at end-December 2013.
OCBC's financing plan targets to improve its Tier 1 capital from the pro-forma
11%, but, according to Moody's, to a somewhat
lower level when compared to end-December 2013.
While Moody's sees the financing plan as credible, the review for
downgrade reflects the risk that such financing could be delayed or significantly
reduced in size. In the unlikely event that this will happen,
OCBC would continue with a lower capital buffer for coping with unforeseen
market and credit risks.
SCOPE OF THE REVIEW
The review of OCBC's ratings will evaluate OCBC's ability
to successfully finance the transaction and whether a substantial part
of the capital raising will be made of core equity. According to
the bank, the transaction should be completed in the coming months,
due to the need to receive the necessary regulatory approvals and complete
the tender offer.
WHAT COULD MOVE THE RATING DOWN/UP
Moody's could confirm the ratings of OCBC and revise the outlook to stable
if the bank successfully completes its financing plan. In case
the bank's financing plan is cancelled, significantly delayed
or reduced, its long-term and standalone ratings could be
downgraded by one notch.
STRATEGIC RATIONALE BEHIND THE ACQUISITOIN OF WING HANG BANK
The proposed acquisition will bring diversification benefits for OCBC,
because the transaction will enlarge OCBC's platform in Greater
China and improve its cross-selling opportunities, including
fee-based products, insurance and wealth management.
OCBC will also get a foothold on the off-shore renminbi financing
market through Hong Kong, providing long-term growth opportunities.
While the acquisition will increase OCBC's exposure to Hong Kong
and China, we consider that this will not materially increase OCBC's
risk profile. According to the bank, it has no plans to aggressively
expand in Mainland China.
Wing Hang's current exposure to China is small, relative to
OCBC. OCBC has a loan book of SGD170 billion ($134 billion)
at December 2013, of which 16% are loans to Greater China
as of end 2013 (mostly mainland China where OCBC has 16 branches,
compared to 1 branch in Hong Kong). Wing Hang Bank has a loan book
of HKD135 billion (SGD22 billion, $17 billion), of
which 19% are loans to Mainland China at end-2013.
On a combined basis, loans to Greater China would represent 26%
of OCBC's total loan book on a pro-forma basis, with
a material part represented by exposures to purely Hong Kong borrowers
and short-term trade finance loans, which are low-risk.
LIST OF AFFECTED RATINGS
Oversea-Chinese Banking Corp Ltd
• BFSR of B, which is equivalent to a aa3 BCA, is placed
on review for downgrade
• Long-term bank deposit ratings of Aa1 are placed on review
for downgrade
• Local currency senior unsecured MTN program ratings of (P)Aa1 are
placed on review for downgrade
• Foreign currency senior unsecured debt ratings of Aa1 are placed
on review for downgrade
• Foreign currency subordinated debt ratings of Aa3 are placed on
review for downgrade
• Local currency junior subordinated MTN program ratings of (P)A1
are placed on review for downgrade
• Local currency preference stock ratings of A3 (hyb) are placed
on review for downgrade
• Local currency pref. stock non-cumulative ratings
of A3 (hyb) are placed on review for downgrade
• Short term bank deposits ratings are affirmed at P-1
• Short term foreign currency commercial paper ratings are affirmed
at P-1
• Short term local currency other short term program ratings are
affirmed at (P)P-1
OCBC Capital Corporation
• Foreign currency BACKED pref. stock non-cumulative
ratings of A3 (hyb) are placed on review for downgrade
OCBC Capital Corporation (2008)
• Foreign currency BACKED pref. stock non-cumulative
ratings of A3 (hyb) are placed on review for downgrade
Oversea-Chinese Banking Corp Ltd (Sydney)
• Foreign currency senior unsecured MTN program ratings of (P)Aa1
are placed on review for downgrade
• Local currency senior unsecured debt ratings of Aa1 are placed
on review for downgrade
• Short term local currency other short term program ratings are
affirmed at (P)P-1
Bank of Singapore Limited
• Long term bank deposit ratings of Aa1 are placed on review for
downgrade
• Long term issuer ratings of Aa1 are placed on review for downgrade
• Short term bank deposit ratings are affirmed at P-1
• Short term issuer ratings are affirmed at P-1
• BFSR of C-, which is equivalent to a baa1 BCA,
remains unchanged with a stable outlook.
The principal methodology used in these ratings was Global Banks published
in May 2013. Please see the Credit Policy page on www.moodys.com
for a copy of this methodology.
Oversea-Chinese Banking Corporation, headquartered in Singapore,
had assets of SGD338 billion as of 31 December 2013.
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.
Eugene Tarzimanov
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (65) 6398-8308
Stephen Long
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (65) 6398-8308
Moody's places OCBC's ratings on review for downgrade on potential acquisition of Wing Hang Bank