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Jih Sun Bank Ratings Affirmed After Acquisition Announcement
(Note:
The Chinese version has been published on TRC's website on 2005/1/28) The rating affirmation on Jih Sun Bank follows its announcement that it won an auction held on Jan. 27, 2005 to acquire most of the trust book (excluding nonperforming loans and nonoperating assets) of Taiwan Development Trust Company (TDTC). The combined net worth of the trust book is about negative NT$7.5 billion according to TDTC, though the total estimated acquisition costs may be somewhat higher. The trust company will pay Jih Sun Bank a total of NT$6 billion in cash in separate installments by the end of 2006, while the bank will recognize NT$1.5 billion goodwill on the acquisition. Jih Sun Bank is slated to officially take over TDTC's trust book at the end of June 2005. Jih Sun Bank's acquisition of TDTC's trust book will enable the bank to expand its total number of branches up to 46 from 34 currently, and also help enhance its business profile. On the other hand, Jih Sun Bank's capitalization and profitability may be moderately impacted by goodwill amortization costs, potential credit losses on loans from the acquired trust book, and other acquisition-related costs. In addition, the installment compensation payment plan by TDTC is inherently risky given the trust company's weak credit profile. Nevertheless, TRC views these risks as manageable given the Jih Sun group's available resources and a planned capital injection. Jih Sun Bank should be able to capably manage the post-acquisition process considering its previous acquisition experience (Sinyung Credit Cooperative in December 2002) and the relatively small size of the newly-acquired trust book. Any impact on the bank's capitalization is expected to be offset somewhat by a proposed NT$2 billion capital injection in 2005 by its parent company, Jih Sun Financial Holding Co. Ltd., funded by the proceeds of a convertible bond issue. The ratings affirmation on Jih Sun Securities reflects the expectation that the acquisition of TDTC's trust book by Jih Sun Bank, which is its sister company, is unlikely to have a major impact on the securities firm and the Jih Sun group as a whole. The rating affirmation
takes into consideration the NT$6 billion payment due from TDTC, Jih Sun
Bank's capital injection plan, and related acquisition costs. However,
if the final results differ significantly from original expectations,
the credit profiles of Jih Sun Bank and other group members may come under
pressure over the medium term, in which case Taiwan Ratings will review
its credit ratings on Jih Sun FHC group members.
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