Fitch Rates BAGL's New Basel III-Compliant Tier 2 Notes 'AA+(zaf)'
The new notes, totalling ZAR2.5bn, are being issued under BAGL's ZAR30bn domestic medium term note (DMTN) programme.
The notes qualify as regulatory Tier 2 capital under Basel III, which was introduced in South Africa on 1 January 2013. The notes contain contractual loss absorption features, which will be triggered at the point of non-viability of the issuer. According to the final terms, the principal amount of the notes can be permanently written-off in full or partially upon the occurrence of a trigger event, at the option of the South African regulator. There are no equity conversion provisions in the terms.
KEY RATING DRIVERS
The notes' rating is notched down once from BAGL's National Long-term Rating to reflect Fitch's view of the notes' potential loss severity via contractual write-off features. While there is uncertainty as to the extent of losses the notes would face in case of a non-viability event we believe that the large new subordinated notes issue further increases the layer of junior non-equity capital available to meet any such loss. The rating of the new notes and the upgrade of the existing notes reflect the increased likelihood of a partial rather than a full write-down.
RATING SENSITIVITIES
The ratings are linked and therefore sensitive to a change in BAGL's National Long-term Rating.
RATING ACTIONS:
New issue of ZAR807m of fixed-rate subordinated notes and ZAR1,693m of floating-rate subordinated notes: assigned at 'AA+(zaf)'
Existing issues of ZAR130m of fixed-rate subordinated notes and ZAR370m of floating-rate subordinated notes: upgraded to 'AA+(zaf)' from 'AA(zaf)'
BAGL's other ratings are as follows:
Long-term Issuer Default Rating (IDR): 'A-'; Outlook Negative
Local currency Long-term IDR: 'A-'; Outlook Stable
Short-Term IDR: 'F2'
National Long-Term Rating: 'AAA(zaf)'; Outlook Stable
National Short-Term Rating: 'F1+(zaf)'
Viability Rating 'bbb'
Support Rating '1'
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