Shinhan Bank's Proposed Basel III Tier 2 Subordinated Notes Assigned 'BBB+' Rating

HONG KONG (S&P Global Ratings) April 15, 2019--S&P Global Ratings today assigned its 'BBB+' long-term foreign currency issue rating to the proposed U.S. dollar-denominated Basel III Tier 2 subordinated notes of Shinhan Bank (A+/Stable/A-1). The notes will be drawn down from the bank's US$6 billion global medium-term note program. The rating is subject to our review of the final issuance documentation.
Shinhan Bank intends to use the proceeds to make loans compliant with its Sustainable Development Goals Bond Framework. They will be direct, unsecured, and subordinated to senior creditors' claims. The notes will be classified as Basel III Tier 2 regulatory capital. The notes' terms and conditions have a write-down clause that allows the following upon the occurrence of a nonviability event: (1) The full principal amount will be permanently written down to zero and the bonds will be canceled; and (2) The payment of principal and interest will be irrevocably waived. The nonviability event trigger will be the designation of the bank as an "insolvent financial institution" pursuant to Korea's Act on the Structural Improvement of the Financial Industry.
Our 'BBB+' issue rating is one notch below the 'a-' stand-alone credit profile of Shinhan Bank. Based on our hybrid capital criteria, the notching reflects the risk related to subordination, but it does not reflect the risk of write-down and waiver of principal and interest payments upon the occurrence of a nonviability event. We believe nonviability would likely be triggered only if the issuer falls into a negative net-worth position, based on Shinhan Bank's terms and conditions.
At the same time, we believe Korean banks--including Shinhan Bank--will likely receive extraordinary support from the government in a preemptive manner and at a relatively early stage if they were to come under financial stress. This is based on the government's track record. Also, we note that such preemptive government support would not constitute a nonviability event in Korea. These two conditions are included in our description of exceptional cases in which we do not reflect the risks of write-down and waiver of principal and interest payments upon the occurrence of a nonviability event.
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