Hong Kong, November 09, 2021 -- Moody's Investors Service has affirmed AVIC Industry-Finance
Holdings Co., Ltd.'s A3 long-term and
P-2 short-term local currency and foreign currency issuer
ratings. At the same time, Moody's has affirmed the
A3 backed senior unsecured domestic currency rating on the bonds issued
by Blue Bright Limited and guaranteed by AVIC Industry-Finance.
The entity-level outlooks on both AVIC Industry-Finance
and Blue Bright Limited remain stable.
Blue Bright Limited, incorporated in the British Virgin Islands,
is an indirect wholly-owned subsidiary of AVIC Industry-Finance.
RATINGS RATIONALE
The affirmation of AVIC Industry-Finance's ratings with a
stable outlook considers the company's stable profitability,
niche franchise in China's leasing business and good liquidity as
reflected by the ba2 standalone assessment. Meanwhile, the
company's high leverage and asset risk constrain its standalone
credit profile.
AVIC Industry-Finance has maintained stable profitability with
return on average assets (ROAA) hovering around 1.5% in
the past three years. The company's profitability is mainly
driven by its leasing and trust businesses, which represented 50%
and 23% of revenue, respectively, in the first half
of 2021. Both businesses have reported stable profitability in
recent years.
AVIC Industry-Finance and its subsidiaries have maintained good
liquidity. At subsidiaries level, AVIC International Leasing
Co., Ltd. (AVIC Leasing) accounted for 70%
of liabilities (excluding those at AVIC Finance Co., Ltd.)
as of 30 September 2021. In recent years, AVIC Leasing has
improved its liquidity by issuing long-term debt and diversifying
its funding sources. In addition, the liquidity held at AVIC
Finance, the exclusive internal treasury center for AVIC Industry-Finance's
parent Aviation Industry Corporation of China, Ltd. (AVIC
Group), further mitigates the refinancing risk at AVIC Industry-Finance
and its subsidiaries.
On the other hand, AVIC Industry-Finance's capitalization
level has decreased progressively in recent years because of its growing
assets, a key constraint on the standalone credit profile.
The company has announced a private placement for gross proceeds of up
to RMB2 billion from the parent, AVIC Group. Should the placement
be completed, it would modestly reduce AVIC Industry-Finance's
leverage.
High asset risk is another constraint on AVIC Industry-Finance's
standalone credit profile. The company's on-the-balance
sheet asset risk is largely driven by AVIC Finance and AVIC Leasing,
because their assets accounted for more than 80% of consolidated
assets as of 30 June 2021. AVIC Finance's asset risk is low
because it is an exclusive treasury center that provides short-term
liquidity to AVIC Group's subsidiaries. Hence, the
asset risk is mainly in the leasing receivables at AVIC Leasing,
which are vulnerable to economic downturns.
In addition, AVIC Industry-Finance's subsidiary,
AVIC Trust Co Ltd, similar to many other trust companies,
has a considerable amount of trust assets under management that are exposed
to China's real estate sector. Although these assets are
not AVIC Trust's proprietary funds and are off its balance sheet,
Moody's expects AVIC Trust would require additional liquidity support
from the group in a severely stressed scenario.
The affirmation of the issuer ratings also considers five notches of uplift
based on the very high level of affiliate support from AVIC Group and
government support from the Chinese government (A1 stable). The
support assumptions reflect AVIC Industry-Finance's strategic
fit within AVIC Group and the group's strategic importance to the
Chinese government. AVIC Industry-Finance is 49.48%
directly and indirectly owned by AVIC Group, which is in turn 100%
owned and managed by the central government. The planned private
placement would further increase AVIC Group's ownership in the company.
AVIC Group is the sole domestic supplier of aviation products to the People's
Liberation Army Air Force in China and participates in developing China's
civil aviation manufacturing industry.
The stable outlook reflects Moody's expectation that AVIC Industry-Finance
will maintain its financial position and continue to receive a very high
level of affiliate and indirect government support over the next 12-18
months.
Affirmation of Blue Bright Limited's A3 ratings
Blue Bright Limited's A3 backed senior unsecured ratings are at
the same level as AVIC Industry-Finance's A3 long-term
issuer rating because the bonds are unconditionally and irrevocably guaranteed
by AVIC Industry-Finance.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Because the A3 issuer rating already incorporates five notches of support
uplift, an upgrade would require more explicit support from AVIC
Group or the Chinese government while the company maintains its standalone
credit profile.
Moody's could upgrade AVIC Industry-Finance's standalone
assessment if the company strengthens its capitalization, improves
its asset quality, and further reduces the tenor mismatch between
its assets and liabilities.
Given that Blue Bright Limited's senior unsecured bonds are guaranteed
by AVIC Industry-Finance, an upgrade of the issuer ratings
would lead to an upgrade of the bond ratings.
Moody's could downgrade AVIC Industry-Finance's ratings
if support from AVIC Group and the Chinese government weakens.
AVIC Industry-Finance's ratings could also be downgraded
if the company's standalone assessment materially deteriorates,
driven by a considerable increase in leverage, asset risk or liquidity
risk.
Given that Blue Bright Limited's senior unsecured bonds are guaranteed
by AVIC Industry-Finance, a downgrade of the issuer ratings
would lead to a downgrade of the bond ratings.
The principal methodology used in these ratings was Finance Companies
Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1187099.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
AVIC Industry-Finance Holdings Co., Ltd.,
which is headquartered in China, reported consolidated assets of
RMB397.3 billion as of 30 September 2021.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity
analysis, see the sections Methodology Assumptions and Sensitivity
to Assumptions in the disclosure form. Moody's Rating Symbols and
Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
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The first name below is the lead rating analyst for this Credit Rating
and the last name below is the person primarily responsible for approving
this Credit Rating.
Lan Wang, CFA
Asst Vice President - Analyst
Financial Institutions Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Sophia Lee, CFA
Associate Managing Director
Financial Institutions Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
