(The following was released by the rating agency)
-- The parent of Hong Kong-based ACSA, Aeon Credit Service, has announced a reorganization plan that includes a merger with Aeon Bank.
-- We believe the proposed merger is likely to undermine the group's credit profile; it also raises uncertainty over the extent of potential group support available to ACSA.
-- We are placing the 'A-/A-2' counterparty credit ratings and our 'cnAA-/cnA-1' Greater China regional scale ratings on ACSA on CreditWatch with negative implications.
On Sept. 13, 2012, Standard & Poor's Ratings Services placed its 'A-' long-term and 'A-2' short-term counterparty credit ratings on Hong Kong-based Aeon Credit Service (Asia) Co. Ltd. (ACSA) on CreditWatch with negative implications. At the same time, we placed our 'cnAA-/cnA-1' Greater China regional scale ratings on CreditWatch with negative implications.
We placed the ratings on CreditWatch to reflect our view that a proposed merger involving ACSA's parent, Japan-based Aeon Credit Service Co. Ltd. (ACS; not rated), is likely to weaken the group credit profile. In addition, the potential parent support available to ACSA may diminish upon the merger.
We believe the strategic importance of ACSA to ACS may reduce following a potential enlargement of the parent's asset, equity and earnings base. This would follow ACS' recently announced proposed merger with Japan-based Aeon Bank Ltd. (not rated).
We are uncertain about the likely asset and capital structure of ACS and Aeon Bank after the proposed merger. The bank currently has larger assets than ACS. Aeon Bank is a niche player in the Japanese banking sector, with residential mortgages representing the bulk of the loan book. It is expanding faster than its domestic peers.
We aim to resolve the CreditWatch once we have more clarity on the asset and capital structure following the merger. We intend to complete a comprehensive assessment of the credit profile of the enlarged ACS group and the strategic importance of ACSA. If we believe the merger with Aeon bank substantially weakens the credit profile of ACS or the strategic importance of ACSA reduces, we may lower the long-term counterparty rating on ACSA by one or two notches and the short-term counterparty rating by one notch. Conversely, we could affirm the ratings if we assess that the merger does not affect the credit profile of ACS and believe that ACSA remains a core subsidiary of the enlarged group.
Related Criteria And Research
Standard & Poor's Financial Institutions Ratings Criteria, June 2, 2011
Aeon Credit Service (Asia) Co. Ltd.
Counterparty Credit Rating A-/Watch Neg/A-2 A-/Negative/A-2
Greater China Regional Scale cnAA-/Watch Neg/ cnAA-/--/cnA-1