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Rating Action:

Moody's affirms BoCom Leasing's A2/P-1 ratings and A3/P-2 ratings of its two subsidiaries; outlook stable

 The document has been translated in other languages

13 May 2022

Hong Kong, May 13, 2022 -- Moody's Investors Service has affirmed Bank of Communications Financial Leasing's (BoCom Leasing) A2 long-term and P-1 short-term issuer ratings.

At the same time, Moody's has affirmed Bocom Leasing Management Hong Kong Co Ltd's (BLMHK) and Bocom Leasing Development HK Co. Ltd.'s (BLDHK) A3/P-2 issuer ratings, as well as the (P)A3/(P)P-2 ratings on the backed senior unsecured medium-term note (MTN) program and the A3 backed senior unsecured ratings of BLMHK.

Moody's has also affirmed the (P)A2 MTN program rating and the A2 rating on the notes issued by Azure Nova International Finance Limited under a guarantee provided by BoCom Leasing, and assigned a stable entity-level outlook to Azure Nova International Finance Limited.

The entity-level outlooks on BoCom Leasing, BLMHK and BLDHK are stable.

A list of the affected ratings can be found at the end of this press release.

RATINGS RATIONALE

BoCom Leasing

BoCom Leasing's A2 long-term issuer ratings incorporate (1) the company's standalone assessment of ba2, supported by its strong franchise and Moody's expectation of its stable financial position in the next 12-18 months; (2) a two-notch uplift of affiliate-backed support from its parent, Bank of Communications Co., Ltd. (BoCom, A2 stable, baa3); and (3) a four-notch uplift of very high indirect support from the Government of China (A1 stable) via its parent in times of stress.

The ba2 standalone assessment reflects BoCom Leasing's strong franchise in China's leasing business for large and medium-sized corporates and its sound profitability, offset by a maturity mismatch between its assets and liabilities, high client concentration and residual value risk from its operating lease assets.

Moody's expects BoCom Leasing to maintain stable financial position in the next 12-18 months. The robust ship-leasing market and the gradual recovery of the global airline industry will help offset the risks arising from domestic pandemic-related travel disruptions. Having said that, the full recovery of global airline industry will depend on the resolution of geopolitical risks, stabilizing oil prices and the easing of the coronavirus pandemic.

Potential impairment charges on its aircraft leased to Russian airlines may negatively impact its profitability, but its direct exposure is small compared with its asset and equity base and the potential impact is manageable.

The company's prudent client selection and focus on large and medium-sized companies in China will also help mitigate asset risks.

Moody's support assumption considers BoCom Leasing's strategic importance and high integration with its 100% shareholder BoCom, and the regulatory requirement that mandates the parent bank to provide liquidity support and capital injections in times of stress. There is also a very high likelihood of indirect support from the Chinese government for BoCom Leasing through the parent bank if needed, given the government's majority ownership of the parent and the parent's systemic importance.

BLMHK and BLDHK

The affirmation of BLMHK and BLDHK's A3 issuer ratings largely considers the affiliate-backed support from BoCom Leasing and its ultimate parent, BoCom, and the very high indirect support from the Chinese government via the parent companies.

The support assumptions for BLMHK reflects the company's operational, managerial and financial integration with BoCom Leasing and its high strategic alignment with BoCom Leasing's overall business.

The support assumptions for BLDHK reflects (1) the company's integral role and strategic importance to the group's offshore leasing business as one of its financing and treasury platforms, (2) the keepwell agreement provided by BoCom Leasing, and (3) BoCom's liquidity and capital commitments to BoCom Leasing.

BLMHK's MTN program, the notes issued under the program and BLDHK's general debt obligations benefit from keepwell agreements provided by BoCom Leasing, which reinforce Bocom Leasing's very high willingness to support them in times of need.

The one-notch differential between BoCom Leasing's A2 issuer rating and BLMHK's and BLDHK's A3 issuer ratings, as well as BLMHK's (P)A3 backed senior unsecured MTN program ratings and A3 backed senior unsecured ratings reflects (1) the absence of a direct guarantee from BoCom Leasing, and (2) the potential risks associated with obtaining the approval to remit funds.

BLMHK's b1 standalone assessment reflects the company's very low capital adequacy and high residual value risk from its ship operating lease. On the other hand, BLMHK will benefit from the robust ship-leasing market and maintain steady revenue growth and good asset quality. BLMHK's affiliation with its parent companies also enhances its funding access.

BLDHK's b2 standalone assessment reflects the company's weak profitability and capital. BLDHK is largely an internal treasury platform for BoCom Leasing's offshore operations.  

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

BoCom Leasing

BoCom Leasing's ratings are aligned with those of its parent. Therefore, any rating action on the parent will likely result in a similar rating action on BoCom Leasing.

The company's standalone assessment could improve if it maintains good asset quality, reduces the tenure mismatches between its assets and liabilities, improves its profitability, and strengthens its tangible common equity (TCE)/tangible managed assets (TMA) ratio to 16%.

Moody's could downgrade the company's ratings if the liquidity and capital support from the parent bank weakens, the company's business relationship with its parent deteriorates, management control by the parent bank declines, or the parent's shareholding in the company declines to less than 50.1%.

Moody's could lower BoCom Leasing's standalone assessment if the company records (1) a deteriorating in asset quality and an increasing in credit costs, (2) sequential losses, (3) weakening liquidity and funding profiles, or (4) a weakening of TCE/TMA ratio to below 9%.

BLMHK

An upgrade of BoCom Leasing's issuer rating or the provision of a direct guarantee by BoCom Leasing could trigger an upgrade of BLMHK's issuer and debt ratings.

BLMHK's standalone assessment could improve if the company markedly improves its capital adequacy, with its TCE/TMA sustained at above 12%, while maintaining its return on average assets (ROAA) at around 1%, along with good asset quality and liquidity. However, a higher standalone assessment will not necessarily translate into a rating upgrade because the standalone assessment after affiliate support is factored in is the same as BoCom's BCA of baa3.

Moody's could downgrade BLMHK's ratings if BoCom Leasing's issuer rating is downgraded; BoCom Leasing, BoCom and the Chinese government's ability and willingness to support BLMHK weaken; significant adverse changes in capital account regulations limit BoCom Leasing's and BoCom's ability to provide timely cross-border support to BLMHK to meet its payment obligations; or BLMHK's standalone assessment significantly deteriorates.

Moody's could lower BLMHK's standalone assessment if its profitability or asset quality significantly deteriorates, with its ROAA remaining below 0.5% or lease residual value exposure/TCE sustaining above 430%; its capital adequacy further declines; or its duration mismatches markedly increase.

BLDHK

An upgrade of BoCom Leasing's issuer rating, or the provision of a direct guarantee, could trigger an upgrade of BLDHK's issuer rating.

BLDHK's standalone assessment could strengthen if it improves its profitability and capital adequacy. However, a strengthening in its standalone assessment will not necessarily translate into an upgrade because the issuer rating already benefits from multiple notches of support.

Moody's could downgrade BLDHK's rating if BoCom Leasing's issuer rating is downgraded; BoCom Leasing's ability and willingness to support BLDHK weaken; or significant adverse changes in capital account regulations limit BoCom Leasing's ability to provide timely cross-border support to BLDHK to meet its payment obligations.

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.

Headquartered in Shanghai, Bank of Communications Financial Leasing (BoCom Leasing) reported total assets of RMB318.9 billion as of 31 December 2021.

Bocom Leasing Management Hong Kong Co Ltd (BLMHK) is incorporated in Hong Kong SAR, China. As of 30 June 2021, it had total assets of approximately USD24.6 billion.

Bocom Leasing Development HK Co. Ltd. (BLDHK) is incorporated in Hong Kong SAR, China. As of 31 December 2020, it had total assets of approximately USD13.9 billion.

The local market analyst for these ratings is Yulia Wan, +86 (212) 057-4017.

LIST OF AFFECTED RATINGS

Outlook Actions:

..Issuer: Azure Nova International Finance Limited

....Outlook, Assigned Stable

..Issuer: Bank of Communications Financial Leasing

....Outlook, Remains Stable

..Issuer: Bocom Leasing Development HK Co. Ltd.

....Outlook, Remains Stable

..Issuer: Bocom Leasing Management Hong Kong Co Ltd

....Outlook, Remains Stable

Affirmations:

..Issuer: Azure Nova International Finance Limited

....Backed Senior Unsecured Medium-Term Note Program (Foreign Currency), Affirmed (P)A2

....Backed Senior Unsecured Regular Bond (Foreign Currency), Affirmed A2

..Issuer: Bank of Communications Financial Leasing

.... Long-term Issuer Rating (Foreign and Local Currency), Affirmed A2

.... Short-term Issuer Rating (Foreign and Local Currency), Affirmed P-1

..Issuer: Bocom Leasing Development HK Co. Ltd.

.... Long-term Issuer Rating (Foreign and Local Currency), Affirmed A3

.... Short-term Issuer Rating (Foreign and Local Currency), Affirmed P-2

..Issuer: Bocom Leasing Management Hong Kong Co Ltd

.... Long-term Issuer Rating (Foreign and Local Currency), Affirmed A3

.... Short-term Issuer Rating (Foreign and Local Currency), Affirmed P-2

....Backed Senior Unsecured Medium-Term Note Program (Foreign and Local Currency), Affirmed (P)A3

....Backed Other Short Term Medium-Term Note Program (Foreign and Local Currency), Affirmed (P)P-2

....Backed Senior Unsecured Regular Bond (Foreign and Local Currency), Affirmed A3

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.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating.  For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of  the guarantor entity.  Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Moody's considers a rated entity or its agent(s) to be participating when it maintains an overall relationship with Moody's. Unless noted in the Regulatory Disclosures as a Non-Participating Entity, the rated entities are participating and the rated entities or their agent(s) generally provide Moody's with information for the purposes of its ratings process. Please refer to www.moodys.com for the Regulatory Disclosures for each credit rating action under the ratings tab on the issuer/entity page and for details of Moody's Policy for Designating Non-Participating Rated Entities.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

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

No Related Data.
© 2022 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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