Fitch Rates Bank of Ayudhya's Basel III Tier 2 THB Notes at 'AA+(tha)'

Wednesday 25 October 2017 11:50
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, with an option to redeem after five years as well as on subsequent interest payment dates.

KEY RATING DRIVERS

The subordinated notes are rated one notch below the bank's National Long-Term Rating to reflect their higher 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 writedown. The notes do not have going-concern loss-absorption features, and hence there is no additional notching for non-performance risk.

BAY's National Long-Term Rating, which is used as the anchor rating, reflects Fitch's belief that the bank is a strategically important subsidiary of the Bank of Tokyo-Mitsubishi UFJ, Ltd. (BTMU; A/Stable/a). BTMU holds 76.9% of BAY and the Thai bank plays a key role in the parent's strategy for south-east Asia, with high levels of integration and marketing linkages.

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 they are 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 on 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 its strategic role. However, Fitch believes that this is unlikely to occur in the medium term.