Fitch Ratings has placed LINE Bank Taiwan Limited's National Long-Term Rating of 'BBB(twn)' and National Short-Term Rating of 'F2(twn)' on Rating Watch Positive (RWP) following the announcement of a merger between Z Holdings Corporation (ZHD) and its two wholly owned subsidiaries, LINE Corporation and Yahoo Japan.
The RWP reflects Fitch's expectation the credit profile of LINE Bank's Japan-based parent, LINE Corporation, is likely to improve following the completion of the merger.
Key Rating Drivers
Merger Proposal: ZHD's board of directors has approved its proposed merger with LINE Corporation and Yahoo Japan by end-March 2024. The proposed merger is intended to expedite product-related decision-making and accelerate the synergies from business integration. Detailed information about the merger, such as the post-merger group structure and timeline, has yet to be announced.
Shareholder Support Drives Ratings: LINE Bank's National Ratings are driven by Fitch's expectation of extraordinary shareholder support from its parent, LINE Corporation, if needed. This expectation incorporates our view of LINE Corporation's high propensity - but moderate ability - to provide support, underpinned by our assessment of LINE Bank's strategic importance to its parent, and the two entities' common branding under LINE group. Our assessment of LINE Corporation's credit profile also includes the potential for support originating from its larger parent, ZHD.
We do not expect a material change to support propensity after the merger. However, should LINE Corporation's credit profile improve, we are likely to view this as an increase in its ability to provide support to its strategic subsidiaries.
Rating Sensitivities
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Fitch will resolve the RWP and affirm LINE Bank's ratings if the merger does not proceed. The ratings would then remain sensitive to changes in the ability and propensity of LINE Corporation to provide timely extraordinary support when needed, as well as changes in its overall credit profile relative to the universe of issuers rated under the same national scale. We do not anticipate developments that would lead to a downgrade in the short term.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Fitch expects to resolve the RWP when we have sufficient certainty that the transaction will be completed, together with details about the transaction. Fitch may upgrade LINE Bank's National Long-Term Rating if we assess that its parent's credit profile has improved with increased ability to support the bank, along with no material change to the post-merger support propensity.
Should its National Long-Term Rating be upgraded by one notch, it is likely that its National Short-Term Rating will be upgraded to 'F1(twn)' from 'F2(twn)', but an upgrade to 'F1+(twn)' is unlikely as this would require a three-notch upgrade to the National Long-Term Rating. The rating outcome will also depend on sufficient information to assess the credit profile of the merged entity. Fitch will likely maintain the RWP beyond the typical six-month horizon as the timeline for the announced merger has yet to be determined.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
Public Ratings with Credit Linkage to other ratings
The ratings on LINE Bank are directly linked to the intrinsic credit profile of the parent, LINE Corporation. A change in Fitch's assessment of the credit profile of LINE Corporation would be likely to result in a change in the ratings on LINE Bank.
RATING ACTIONS
Entity / Debt
Rating
Prior
LINE Bank Taiwan Limited
Natl LT
BBB(twn)
Rating Watch On
BBB(twn)
Natl ST
F2(twn)
Rating Watch On
F2(twn)
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Additional information is available on www.fitchratings.com
Z HOLDINGS CORPORATION 
