OCBC-Wing Hang Bank takeover poses transitional execution risks: Moody's

Recapitalizaton plan might have some snags.

Moody's Investors Service believes that the announced takeover by Oversea-Chinese Banking Corporation Ltd of Wing Hang Bank will impact OCBC's capitalization, and pointed out that the uncertainties around its short-term recapitalization plan.

"We placed OCBC on review for downgrade primarily because of the transaction's impact on OCBC's capitalization, in terms of both the initial drop in its capital ratios, and the execution risks surrounding its subsequent efforts for capital replenishment," says Gene Fang, a Moody's Vice President and Senior Analyst.
Fang was speaking on the release of a new credit focus, entitled "OCBC-Wing Hang Takeover Will Pose Transitional Execution Risks Before Benefits Are Reaped -- Answers to Frequently Asked Questions".

Beyond the risks related to OCBC's recapitalization plan, Moody's does not expect the transaction -- announced on 1 April -- to weaken OCBC' credit profile, given the strength of WHB's balance sheet and positioning in the Hong Kong and China markets.

"Strategically, the transaction will enlarge OCBC's platform in greater China, improve its ability to provide off-shore renminbi financing, and position its franchise to benefit from increasing intraregional trade and capital flows within Asia," adds Fang.

Moody's report gives greater detail on its assessment of the transactions' credit implications.