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Announcement:

MOODY'S TO APPLY NOTCHING TO CHINA CORPORATE ISSUERS

17 Aug 2006
MOODY'S TO APPLY NOTCHING TO CHINA CORPORATE ISSUERS

Hong Kong, August 17, 2006 -- Moody's Investors Service has confirmed today that it will apply notching to ratings for Chinese corporate issuers in China when material legal or structural subordination is apparent in their capital structures.

At the same time, Moody's has confirmed that the revised approach does not have any immediate impact on 8 existing Chinese company ratings that were previously identified as potentially affected by this revised approach. Full details of all rating affirmations are at the end of this press release.

In July 2006, Moody's published a Special Comment, entitled "Notching For Legal And Structural Subordination In China For Corporate Issuers".

"The revised approach systematically applies notching to the senior unsecured debt raised by a Chinese company or debt at the holding company level -- to reflect higher expected loss -- where material legal or structural subordination exists in the capital structure," says Gary Lau, a Moody's Senior Vice President, adding, "This new approach, now in effect, is in line with practices implemented elsewhere in Asia."

As such, in assessing the materiality of subordination, if the ratios of secured debt or subsidiary level debt exceed 15% of consolidated debt and 10-15% of consolidated assets, then the relevant senior unsecured bond rating or holding company rating would generally be notched downwards. The greater the level of subordination, then the greater is the potential level for notching.

However, in such circumstances, Moody's would also consider the ability and willingness of the issuer to reduce these ratios in the next 1- 2 years. In assessing such a situation, Moody's would further consider the company's previous funding strategies as well as the funding practices usual for its particular industry.

"In the case of the 8 companies identified before as potentially affected, they all exhibited secured debt or subsidiary level debt ratios which exceeded 15% of total consolidated debt," says Lau. "But, in their cases, Moody's also considered the fact that each had reduced, or is expected to reduce within 2 years, such debt to below 15% of total assets."

In addition, while the first ratio - for consolidated debt - was high for these 8 companies and suggested notching for legal or structural subordination, Moody's had, after further consideration, concluded that in each case the risk was somewhat mitigated by a low second ratio, that for consolidated assets.

Generally, such situations suggest reasonable asset coverage for claims by unsecured or holding company creditors in the event of default, and reduce the materiality of the risk associated with subordination.

At the same time, in the case of those companies with ratios of debt to consolidated assets still above 15%, Moody's expects reductions below 10-15% within the next 1-2 years. However, if our expectations change, one-notch downgrades for the relevant unsecured bond ratings could occur.

Details of all rating affirmations follow. For details of their rating rationales, please refer to the respective credit opinions also published today.

* Asia Aluminum Holdings Limited *

- Asia Aluminum Holdings Limited -- Affirmed B1 senior unsecured debt rating with stable outlook

* China Mobile Limited *

- China Mobile Limited -- Affirmed A2 issuer rating with positive outlook

* China National Offshore Oil Corporation *

- China National Offshore Oil Corporation -- Affirmed A2 issuer rating with positive outlook

* China Overseas Land & Investment Limited*

- China Overseas Finance (Cayman) I Limited -- Affirmed Baa3 senior unsecured debt rating with stable outlook

* China Merchants Holdings International Co Limited *

- CMHI Finance (Cayman) Inc. -- Affirmed Baa2 senior unsecured debt rating with stable outlook

* CITIC Pacific Limited *

- CITIC Pacific Finance (2001) Limited -- Affirmed Ba1 senior unsecured debt rating with stable outlook

* Hopson Development Holdings Limited *

- Hopson Development Holdings Limited -- Affirmed Ba2 senior unsecured debt rating with stable outlook

* XinAo Gas Holdings Limited *

- XinAo Gas Holdings Limited -- Affirmed Ba1 senior unsecured debt rating with negative outlook

Hong Kong
Gary Lau
Senior Vice President
Corporate Finance Group
Moody's Asia Pacific Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (852) 2916-1121

Hong Kong
Min Ye
Managing Director
Structured Finance Group
Moody's Asia Pacific Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (852) 2916-1121

No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of any rating, agreed to pay to Moody’s Investors Service, Inc. for ratings opinions and services rendered by it fees ranging from $1,000 to approximately $2,700,000. MCO and MIS also maintain policies and procedures to address the independence of MIS’s ratings and rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold ratings from MIS and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”

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MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

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