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March 13, 2008 |
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AMBANK BERHAD: Fitch Puts BB Rating on Stapled Securities Fitch Ratings has assigned a long-term rating of 'BB' to Malaysia-based AmBank (M) Berhad's Stapled Securities denominated in Singapore dollars. The rating is two notches below AmBank's Long-term foreign currency Issuer Default Rating of 'BBB-', which was affirmed in December 2007 with a Positive Outlook; this is in accordance with Fitch's criteria of rating hybrid securities of financial institutions. The final rating is contingent upon receipt of final documents conforming to information provided to date. In the event of liquidation, the right of payment of the Stapled Securities will rank junior to the bank's deposits and debt obligations (including subordinated instruments), senior to ordinary shares and pari passu to preference shares. AmBank's Stapled Securities will comprise the Non-Cumulative Perpetual Capital Securities, which are stapled with the Subordinated Notes issued by the bank's wholly owned subsidiary, AmCapital (L) Inc. Interest payments on the Subordinated Notes will commence from the issue date while distributions on the Capital Securities will only commence from an Assignment Event. An Assignment Event will occur, amongst others, following a breach in the minimum regulatory capital adequacy ratios, or a winding up proceeding, or after 10 years from the issue date, or at the option of either Bank Negara Malaysia or AmBank. Following an Assignment Event, the Subordinated Notes, which will cease to be stapled to the Capital Securities, will be transferred to AmBank under a forward purchase arrangement while the investors will continue to hold the Capital Securities. The structure of the Stapled Securities achieves two objectives: (i) the Capital Securities will qualify as Non-Innovative Tier-1 Capital under the BNM guidelines and (ii) the interest payments on Subordinated Notes are expected to qualify for tax deductions. The issuance of the Stapled Securities is unlikely to materially affect AmBank's CARs (Tier-1: 6.3%; Total: 12.0% at end-September 2007) as it forms part of the ongoing internal reorganization of the larger AMMB Holdings Berhad group where the bank will assume additional assets from its sister AmInvestment Bank Berhad by end-March 2008. Based on Fitch's equity credit criteria, the Stapled Securities are assigned Class E equity treatment, giving them 100% equity credit. This classification recognizes the securities' subordinated ranking, their perpetual nature and the mechanisms for non-payment of interest. Ongoing cash payments on the Stapled Securities will be mandatorily deferred (i.e. the interest payment will be waived) should it result in AmBank's CARs declining below the regulatory minimum. Thisconsideration overrides the look-back provision which prevents such nonpayments had the bank or its subsidiaries been franking dividends on ordinary and other preference shares over the past six months. While perpetual in nature, the Capital Securities are redeemable at the bank's option after 10 years from the date of issuance. Such redemption however would require BNM's approval and AmBank meeting its minimum CARs. AmBank has a sizeable presence in the consumer market in Malaysia with a notable franchise in car hire-purchase financing. The commercial bank is part of the AHB group, whose two major shareholders are AmCorpGroup Berhad (owned by non- executive Chairman, Tan Sri Azman Hashim with 18.1%shareholding) and ANZ with a shareholding of 14.1%. Subject to regulatory approvals, ANZ's shareholding can increase up to 24.9% through the exercise of conversion option attached to the convertible and exchangeable instruments that it injected into the group in 2007. |
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