TRIS Rating places CreditAlert with a “negative” implication on the company rating currently assigned to Thanachart Securities PLC (TNS) at “A+”. The CreditAlert follows the signing of non-binding memorandum of understanding (MOU) by five parties including: TMB Bank PLC (TMB), Thanachart Bank PLC (TBANK), Thanachart Capital PLC (TCAP), ING Groep N.V. (ING), and Bank of Nova Scotia (BNS) on 26 February 2019 to proceed with a merger between TMB and TBANK.
We note that at this point the transaction remains uncertain and subject to the precedent conditions specified in the SET disclosure. The due diligence process will span over the next few months. The transaction remains to be approved by relevant regulators, including the Ministry of Finance (MOF), the Bank of Thailand, and the Securities and Exchange Commission, as well as the shareholders of both banks. If the transaction is approved, the entire process is expected to be completed by end-2019.
The company rating of TNS remains unchanged as of this CreditAlert announcement. However, based on our credit rating methodology, we place the “negative” CreditAlert on TNS as TNS’s rating could be downgraded or remained unchanged from the current level. This is because TNS’s rating may no longer benefit from its linkage to TBANK as a wholly-owned parent of TNS, once TBANK is amalgamated with TMB to form a new bank and/or TNS becomes a wholly-owned subsidiary of TCAP. TNS’s rating will depend largely on its stand-alone financial performance and profile and/or its relationship with TCAP.
TRIS Rating expects to resolve the CreditAlerts upon completion of the transaction or when available data is sufficient to enable us to make in-depth analysis and conclusion on the rating of TNS.
Details of transaction
According to the announced plan, the merger focuses on TBANK’s banking business. TBANK is therefore required to divest its holding in most of its subsidiaries and other investments to TBANK’s shareholders based on respective shareholding (TCAP 51%; BNS 49%). As a consequence TNS, which is currently 100%-owned by TBANK, will be divested along with other subsidiaries including Ratchathani Leasing PLC (THANI; 65%), Thanachart Insurance Co., Ltd. (TNI; 100%), and TS Asset Management Co., Ltd. (TS AMC; 100%). Ultimately, TCAP is likely to become TNS’s parent company, if the transaction is successful.
TMB estimates the total consideration at about Bt130-Bt140 billion. The transaction will be 70% equity-funded and 30% debt-funded (part of this may come from TMB’s excess liquidity). The equity financing will derive from new share offering, comprising: 1) a rights offering to TMB’s existing shareholders (Bt40-Bt45 billion); and 2) share offering to TCAP and BNS at 1.1 times TMB’s book value post-recapitalization (Bt50-Bt55 billion).
If the merger is successful, ING and TCAP are expected to hold more than 20% each in the combined bank, while the MOF is expected to hold less than 20%. BNS is likely to hold a minimal stake in the new bank. TNS will ultimately become a subsidiary of TCAP.
RELATED CRITERIA
- Securities Company in Thailand, 21 December 2017
- Group Rating Methodology, 10 July 2015
?
Thanachart Securities PLC (TNS)
Company Rating: A+
CREDITALERT: Negative