S&P negative towards cimb's BankThai move

However, Moody's Investors Service has affirmed CIMB Bank's ratings with a stable outlook.

"We expect to resolve the credit-watch posting within the next few weeks after discussing acquisition funding and integration plans with CIMB Group management and assessing the group's emerging credit profile," said S&P credit analyst Ivan Tan.

The acquisition, which requires shareholder and regulatory approval, is likely to be completed in the third quarter. CIMB Group would then be required under Thai law to make a tender offer to acquire all the remaining BankThai shares, bringing the possible acquisition cost to 1.4 billion Malaysian ringgit (Bt14.4 billion).

Including the full use of the standby facility for buying shares from minority shareholders of Bank Niaga and PT Lippo Bank, the cash outlay could amount to 3.4 billion ringgit.

The group is to buy the 42-per-cent stake in BankThai from the Financial Institutions Development Fund.

Christine Kuo, a Moody's vice president and senior analyst, admitted that CIMB Bank's financial profile would be negatively affected by the transaction, but said the impact was not sufficient to warrant a rating change.

"The major financial impact would be a reduction in CIMB Bank's capital ratios, while its other key financial data - such as earnings and asset quality - would not be significantly affected due to BankThai's relatively small size," Kuo said. "However, if CIMB Bank continues to make acquisitions, the increase in its risk profile and additional stress on its balance sheet and management resources could trigger a ratings review."

CIMB Bank reported a total capital-adequacy ratio (CAR) of 13.9 per cent and tier-1 CAR of 9.2 per cent as of the end of March. Moody's expects the total transaction cost to rise to about 1.9 billion ringgit, including the mandatory tender offer and the recapitalisation of BankThai worth 500-600 million ringgit.

Moody's said from a franchise perspective, CIMB Bank would benefit from earnings and risk diversification over the long term, although considerable efforts and resources would be required to restructure BankThai. At present, CIMB Bank has no presence in Thailand.