Fitch changes rating watch on Suncorp-Metway and Suncorp-Metway Insurance
Fitch Ratings has changed the Rating Watch on Suncorp-Metway Limited (”Suncorp”; rated Long-term Issuer Default rating ‘A’, Short-term ‘F1′, Individual ‘B’ and Support ‘3′) and Suncorp-Metway Insurance Limited (”SMIL”; Insurer Financial Strength ‘A+’) to Positive from Evolving.
This follows further discussions with the management on Suncorp’s bid for Promina Group Limited (”Promina”), a large Australian general insurance company. Suncorp and SMIL were placed on Rating Watch Evolving (”RWE”) on 12 October 2006 when the company first announced the move. Fitch views the deal as providing a greater level of diversity, both by product and geography, to Suncorp’s general insurance operations without compromising the group’s sound capital position. Compensation to Promina shareholders will be through cash and scrip (AUD1.80 and 0.2618 Suncorp shares per Promina share), with the cash component (approximately AUD1.9 billion) funded via a combination of surplus capital, hybrid issuance and a non-dilutive, fully underwritten entitlements issue. While the most recent discussions have provided additional clarity regarding funding for the transaction, final details have yet to be outlined. However, Suncorp has stated that it will not allow its regulatory capital ratios to fall below the bank’s internal target ranges. Fitch deems these target ranges to be satisfactory. “While Fitch would need to view the final structure of the deal before resolving the RWP, on current information, Suncorp’s bid for Promina would appear to be more positive than not for its credit ratings,” said Tim Roche, associate director in the Financial Institutions group. The RWP is expected to be resolved once there is a greater level of certainty on regulatory and Promina shareholder approval for the deal - on current timetables this is expected to be by the end of the first quarter of 2007, although regulatory issues may lead to this date being extended.