Moody's: Bank of East Asia notes Ba2(hyb)

Moody's Investors Service said it assigned a Ba2(hyb) rating to Bank of East Asia Ltd.'s proposed dollar-denominated perpetual non-cumulative and subordinated additional tier 1 (AT1) capital securities.

The AT1 capital securities will be drawn down from the bank's existing dollar-denominated medium-term note program, the agency said.

The terms and conditions of the capital securities incorporate Basel III-compliant non-viability language in accordance with Hong Kong capital rules, Moody's said, and will qualify as regulatory AT1 capital.

The Ba2(hyb) rating is positioned three notches lower than the bank's baseline credit assessment and adjusted baseline credit assessment of Baa2, the agency said.

The three-notch difference reflects the probability of impairment associated with non-cumulative coupon suspension, Moody's said, as well as the likelihood of high loss severity when the bank reaches the point of non-viability.

In addition, to be classified as AT1 capital, Bank of East Asia, as a going concern, may choose not to pay distributions on a non-cumulative basis, the agency added.

These securities are senior to common shareholders, but junior to all depositors, general creditors, senior debt and subordinated debt holders, Moody's also noted.

The ratings also consider the bank's sound liquidity profile and capitalization, the agency said.

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