(The following was released by the rating agency)
TOKYO (Standard & Poor‘s) Sept. 13, 2012--Standard & Poor’s today said its ratings on Aeon Co. Ltd. (A-/Negative/--) would not be immediately affected by the announcement of a reorganization of its financial service business. Aeon’s consolidated financial subsidiary Aeon Credit Service Co. Ltd. (not rated) will merge with Aeon’s equity-method subsidiary Aeon Bank Ltd. (not rated) on Jan. 1, 2013--through a conversion of Aeon Bank shares to Aeon Credit Service stock--and move to a bank-holding company structure on April 1, 2013. In our view, Aeon Bank has weaker credit quality than Aeon or Aeon Credit Service, due mainly to its status as a startup and the weakness of its business compared with its domestic peers. Nevertheless, we believe the reorganization will have no immediate effect on our ratings on Aeon, because it is unlikely to materially change the structure of Aeon group’s financial service business, in our view.
Aeon Bank is a 38.75%-owned (on a voting-right basis) equity-method subsidiary of Aeon and will become a 100% subsidiary of Aeon Credit Service and a consolidated subsidiary of Aeon if the transaction proceeds smoothly. Aeon already owns 53.25% of Aeon Bank on a nonvoting-right basis, and Aeon has provided financial support to Aeon Bank since establishing it in 2006. We have factored this support, and a likelihood it would provide ongoing and extraordinary support to Aeon Bank, into our analysis on Aeon. We will continue to assess Aeon’s stance on supporting its financial service business after the transaction is done. As for Aeon’s business operations, we believe it will be some time before Aeon group extracts any combined benefits from the reorganization and materially increases the group’s profitability. Therefore, we do not believe the transaction will have a great enough impact to more positively affect our view of Aeon’s retail business in the short term. Given that the capital structure of Aeon’s financial service business is different to that of regular corporate businesses, we deconsolidate it in conducting our financial risk analysis of Aeon. Therefore, we do not expect consolidation of Aeon Bank to materially change our financial ratios for Aeon.