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Fitch Ratings-Taipei/Hong Kong-19 November 2009: Fitch Ratings has today said that Chinatrust Financial Holding Company's (CFHC) agreement with China Strategic Holdings Limited (CSH) to acquire a 30% stake in Nan Shan Life Insurance Company, Ltd. (Nan Shan) will have a moderate impact on CFHC's financial profile. The strategic investment in Taiwan's second-largest life insurance company also highlights CFHC's ambition to shift from a bank-centric entity to a more diversified financial group.
According to CFHC's announcement, the company will purchase the 30% stake in Nan Shan from CSH for USD660m (TWD21.2bn). This will follow Primus Nan-Shan Holding Company Limited's (an 80%-owned subsidiary of CSH) acquisition of a 97.57% stake in Nan Shan from American International Group Inc. As part of the agreement, CSH will subscribe to CFHC's new shares valued at TWD20.8bn (or 9.95% of CFHC's enlarged share capital, which will be a part of CFHC's planned TWD44.4bn rights issue) via a private placement. The strategic investment and private placement are subject to regulatory approvals and are expected to be completed in the second quarter of 2010.
The share acquisition of Nan Shan, in Fitch's view, will not put material capital strain on CFHC. This is because the investment will be fully funded by the new common capital, and the deeply-discounted acquisition price (0.5 times Nan Shan's equity value as at end-Q309) will alleviate the potential negative impact arising from Nan Shan's legacy policies of high guaranteed rates. Nonetheless, like most Taiwanese life insurers, Nan Shan's profitability is greatly influenced by its investment performance. This is likely to increase CFHC's earnings volatility after the acquisition. In addition, although the investment in Nan Shan will increase CFHC's business diversity and create cross-selling opportunities, Fitch is concerned that an unduly aggressive approach to expanding market share may lead to weaker financial strength and could put downward pressure on CFHC's and its subsidiaries' (including Chinatrust Commercial Bank and Chinatrust Securities Co.) ratings.
The ratings of CFHC are as follows:
- Long-term Issuer Default Rating (IDR) 'A'/Stable;
- Short-term IDR 'F1';
- National Long-term rating 'AA+(twn)';
- National Short-term rating 'F1+(twn)';
- Individual rating 'B';
- Support rating '5'; and
- Support Rating Floor 'NF'.
Contacts: Joyce Huang, Sophia Chen, Jonathan Lee, Taipei, +886 2 8175 7600.
Note to editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(twn)' for National ratings in Taiwan. Specific letter grades are not therefore internationally comparable.
Media Relations: Karen Cho, Hong Kong, Tel: +852 2263 9935,
Email:
karen.cho@fitchratings.com.
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