OREANDA-NEWS. Fitch Ratings has assigned Hong Kong-based Dah Sing Bank's (DSB; BBB+/Stable) proposed Basel III-compliant Tier-2 dated subordinated notes an expected 'BBB(EXP)' rating.

The USD200m-250m notes will be issued under DSB's USD2bn euro medium-term note programme. The notes will have maturity of 10 years and will be callable by DSB after five years and semi-annually thereafter. They include a non-viability clause and will qualify as Tier-2 capital upon approval from the Hong Kong Monetary Authority (HKMA). Fitch expects the bank to use the proceeds to support business expansion and replace legacy obligations that will become callable in 2017.

The final rating is contingent on the receipt of the final documents conforming to information already received.

KEY RATING DRIVERS

Fitch rates the notes one notch below DSB's Viability Rating, which equivalent to its Issuer Default Rating as we do not expect the bank to benefit from sovereign support in times of stress. The one-notch difference reflects the notes' below-average recovery prospects relative to senior unsecured instruments, as well as the contractual partial loss feature. The notes could be written down or converted into equity, in full or in part, if the HKMA considers this step necessary to restore the bank's viability.

We apply no additional notching for non-performance as the point of non-viability broadly coincides with what we express in the anchor rating.

We expect the new issue to increase DSB's total capital adequacy ratio by 1.1-1.3pp (end-1H16: 16.7%), which would help offset the impact of the regulatory phase-out or an outright call of Tier-2 instruments without non-viability clauses.

RATING SENSITIVITIES

The rating on the notes is sensitive to any changes in DSB's Viability Rating, which in turn is sensitive to the performance of its China-related activities, maintenance of sufficient loss-absorption buffers and stringent risk controls.

The other ratings of DSB remain unchanged and are as follows:

Long-Term IDR: 'BBB+'; Outlook Stable

Short-Term IDR: 'F2'

Viability Rating: 'bbb+'

Support Rating: '5'

Support Rating Floor: 'No Floor'

Lower Tier-2 subordinated debt without non-viability clauses: 'BBB'

Subordinated notes with non-viability clauses: 'BBB'

Perpetual junior subordinated debt without non-viability clauses: 'BB+'