Moody's places SHB Finance on review for upgrade on potential sale to Bank of Ayudhya

Moody's places SHB Finance's ratings on review for upgrade

The rating action follows Saigon-Hanoi Commercial Joint Stock Bank's (SHB, B2 stable) agreement with Bank of Ayudhya (BAY, Baa1 stable) to sell a 100 per cent equity stake in SHB Finance, subject to regulatory and board approvals.

The review for upgrade reflects expectation that BAY will support SHB Finance because of its importance to BAY's ASEAN expansion strategy, as well as BAY's significant ownership and other reputational considerations. Currently, Moody's incorporates a high probability of affiliate support for SHB Finance from SHB.

The transaction will have two phases with SHB transferring 50 per cent of the charter capital during the first phase in the first half of 2022, and the remaining 50 per cent in the next three years. Moody's will reevaluate the affiliate support assumptions for the company following the completion of the first phase.

Over time, it expects SHB Finance to benefit from funding, technology, and risk management support from BAY and its parent MUFG Bank, Ltd. (MUFG, A1 stable), which has a long history in consumer finance in parts of Asia. Moody's will review these benefits as well as BAY's involvement in setting the company's strategic direction.

Upon the completion of the first phase of transfer of ownership, Moody's could upgrade SHB Finance's ratings by one notch to B2 based on the assumed affiliate support that SHB Finance will receive from BAY. If the transaction is not approved, Moody's will confirm SHB Finance's ratings. Once the second phase is completed, SHB Finance's ratings could receive a more significant uplift because of affiliate support.

Given the review for upgrade, Moody's is unlikely to downgrade SHB Finance's ratings during the review period.