OREANDA-NEWS. Fitch Ratings has maintained the Rating Watch Negative (RWN) on most of the ratings of Taiwan-based Yuanta Financial Holding Co., Ltd. (YFHC) and its subsidiaries - Yuanta Securities Co., Ltd. (YS) and Yuanta Commercial Bank Co., Ltd. (YCB). Fitch placed most of the ratings of Yuanta Group on RWN on 19 August 2015 following the announcement that YFHC will acquire all the shares of Ta Chong Bank (TCB). A full list of rating actions is at the end of this rating action commentary.

Fitch expects to resolve the Rating Watch after the transaction is completed in late March, when Fitch receives greater clarity on YFHC's consolidated credit profile and capitalisation. The group plans to merge TCB into YCB over the course of a year after that.

The transaction has received approvals from the regulator and both companies' shareholders. The acquisition is valued at TWD56.5bn, which includes YFHC's purchase of TCB's existing European convertible bonds.

Fitch expects the group's financial flexibility to weaken after the completion of transaction, which YFHC will finance through a mix of debt issuance, and capital upstreaming from YS and Yuanta Securities Finance. YFHC's double leverage ratio could rise to about 115%-119% after the transaction from 106% at end-3Q15. In addition, its sum of parts capitalisation ratio could drop to 115%-123% from 146% at end-3Q15.

KEY RATING DRIVERS
IDRS, NATIONAL RATINGS AND SENIOR DEBT
The RWN continues to reflect the potential dilution of Yuanta Group's credit profile due to the increase in commercial banking assets, and potentially weaker capitalisation as the group's leverage increases. Fitch estimates that once YCB merges with TCB, it will account for 48% of the group's equity and 65% of the group's assets, compared with 29% and 54%, respectively at end-3Q15.

YS's IDR and National Ratings, the anchor ratings for companies in the Yuanta group, remain on RWN because the company's decreased capital buffer (after a capital reduction to help YFHC to finance the transaction) could weaken its ability to provide sufficient support to the group as a whole at the 'BBB+' rating level.

YCB's IDR and National Ratings remain on RWN, aligned with the rating action on its parent, YFHC, reflecting its status as a core subsidiary of the group and the obligatory support from the parent company under Taiwan's Financial Holding Company Act.

YFHC and YCB's senior unsecured bond ratings remained on RWN because they are notched from the companies' Long-Term IDRs and National Long-Term Ratings.

VIABILITY RATING (VR)
YCB's VR is affirmed at 'bb+'. YCB is likely to benefit from a larger scale once it merges with TCB. However, such positive effects are likely to arise only after 12 months or more. Fitch will evaluate YCB's VR after there is greater clarity on how the two entities will be merged.

RATING SENSITIVITIES
IDRS, NATIONAL RATINGS AND SENIOR DEBT
Fitch will likely downgrade the group's IDRs, National Ratings and debt ratings by one notch if the consolidated financials confirm Fitch's expectations that the group's credit profile and capitalisation will be weaker. Fitch may take further negative rating actions in the medium term should the group continue to grow aggressively or the acquisition lead to a significant deterioration in the Yuanta Group's asset quality and capital buffer.

VIABILITY RATING (VR)
Fitch will consider upgrading YCB's VR if it realises the benefits from a larger scale following the acquisition. However, the VR will not be upgraded if the bank's risk appetite rises and asset quality deteriorates after the transaction.

The rating actions are as follows:

Yuanta Securities Co., Ltd.:
Long-Term Foreign Currency IDR at 'BBB+'; maintained on RWN
Short-Term Foreign Currency IDR at 'F2'; maintained on RWN
National Long-Term Rating at 'AA-(twn)'; maintained on RWN
National Short-Term Rating at 'F1+(twn)'; maintained on RWN

Yuanta Commercial Bank Co., Ltd.:
Long-Term Foreign Currency IDR at 'BBB+'; maintained on RWN
Short-Term Foreign Currency IDR at 'F2'; maintained on RWN
National Long-Term Rating at 'AA-(twn)'; maintained on RWN
National Short-Term Rating at 'F1+(twn)'; maintained on RWN
Viability Rating affirmed at 'bb+'
Senior unsecured debt at 'AA-(twn)'; maintained on RWN

Yuanta Financial Holding Co., Ltd.:
Long-Term Foreign Currency IDR at 'BBB+'; maintained on RWN
Short-Term Foreign Currency IDR at 'F2'; maintained on RWN
National Long-Term Rating at 'AA-(twn)'; maintained on RWN
National Short-Term Rating at 'F1+(twn)'; maintained on RWN
Senior unsecured debt at 'AA-(twn)'; maintained on RWN.