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Rating Action:

Moody's affirms Cinda AMC's A3/P-2 ratings; outlook stable

 The document has been translated in other languages

05 Jul 2019

Hong Kong, July 05, 2019 -- Moody's Investors Service has affirmed China Cinda Asset Management Co., Ltd.'s (Cinda AMC) A3 long-term and P-2 short-term issuer ratings. At the same time, Moody's has affirmed Cinda AMC's baseline credit assessment (BCA) at ba2.

Moody's has also affirmed the ratings for the backed medium-term note (MTN) program and the ratings for the backed notes issued by Cinda AMC's offshore subsidiaries.

The entity-level outlooks on Cinda AMC and its offshore debt-issuing subsidiaries remain stable.

A full list of the affected ratings is provided at the end of this press release.

RATINGS RATIONALE

The affirmation of Cinda AMC's A3/P-2 issuer ratings incorporate its baseline credit assessment (BCA) of ba2 and a five-notch uplift, based on Moody's assumption of a very high level of support from the Government of China (A1 stable), under Moody's joint-default analysis approach for government-related issuers. Moody's assessment of support reflects the strategic role that Cinda AMC, as one of the big four state-owned distressed asset management companies and 64.5% owned by the Ministry of Finance, plays in China's economic rebalancing and in maintaining the stability of the financial system.

The affirmation of the ba2 BCA reflects Cinda AMC's (1) strong and defensive franchise in the distressed asset management business; (2) the solid credit profile of its banking subsidiary, Nanyang Commercial Bank, Ltd. (NYCB, A3 stable, BCA: baa2); and (3) its adequate liquidity profile.

However, these strengths are still offset by the (1) declining profitability; (2) continued pressure on the company's capital; and (3) increasing asset quality risk and investment risk due to China's economic slowdown.

Cinda AMC has continued to grow in scale over the past few years, driven by an increasing level of non-performing loans (NPLs) among Chinese financial institutions and amid China's corporate deleveraging process. Its total assets in the distressed asset management business increased to RMB643 billion at the end of 2018 from RMB593 billion at the end of 2017.

Cinda AMC's acquisition of NYCB in June 2016 has further supported growth and created synergies for both companies, underpinned by NYCB's adequate capitalization, satisfactory asset risk, and sound liquidity with limited reliance on wholesale funding. The integration has been smooth in the past few years and created synergy gradually for both companies.

The company's return on average assets fell to 0.8% in 2018 from 1.5% in 2017, mainly due to a lower profitability in distressed management business, an increase in funding cost and a material loss of its life insurance subsidiary, driven by an unfavorable operating environment and capital market in 2018.

At the same time, the company's ongoing growth is pressuring its capital adequacy, which was already negatively impacted by the acquisition of NYCB that was funded mainly by debt and included significant levels of goodwill. Cinda AMC's tangible common equity/total managed assets (TCE/TMA) dropped below 8% at the end of 2017 and 2018, from around 14% at the end of 2015. Since it has fine-tuned its growth strategy in different business lines, Moody's expects the capital adequacy to stabilize.

China's economic slowdown means that the company is facing increased challenges in resolving distressed assets, and the repayment ability of its clients could deteriorate. At the end of 2018, total impaired assets and its impaired assets ratio increased to RMB7.1 billion and 3.13%, respectively, from RMB4.2 billion and 1.88% at the end of 2017.

Moody's expects the company's liquidity profile will remain adequate, supported by its government-owned background. Cinda AMC continues to enjoy sizeable credit lines from China's large state-owned banks and has adequate liquidity buffers on its balance sheet.

What Could Change the Rating -- Up

Cinda AMC's rating could be upgraded if (1) the support from the central government strengthens because the company's activities assume greater strategic importance; and (2) its BCA is upgraded.

Cinda AMC's BCA could experience upward pressure if: (1) it strengthens its balance sheet through capital raising activities, such that its TCE/TMA ratio exceeds 12% and the company materially increases the proportion of long-term funding in its funding mix, such short-term funding accounts for less than 40% of total interest-bearing liabilities; and (2) it maintains strong profitability during the current NPL cycle.

What Could Change the Rating -- Down

Cinda AMC's rating could be downgraded if (1) the support from the central government weakens because the company undertakes more non-core activities and competition increases, thereby weakening Cinda AMC's strategic importance; or (2) its BCA is lowered.

Cinda AMC's BCA could be lowered if: (1) it continues to grow its assets rapidly, resulting in a deterioration in its solvency, such that its TCE/TMA ratio further declines; and/or (2) its profitability and asset quality weaken as a result of declining valuations for its asset holdings when compared with the acquisition costs.

The methodologies used in these ratings were Finance Companies published in December 2018, and Government-Related Issuers published in June 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

Headquartered in Beijing, China Cinda Asset Management Co., Ltd. reported consolidated assets of RMB1,496 billion as of the end of 2018.

LIST OF AFFECTED RATINGS

Issuer: China Cinda Asset Management Co., Ltd.

.... Local currency and foreign currency long term issuer ratings affirmed at A3

.... Local currency and foreign currency short term issuer ratings affirmed at P-2

.... Foreign currency preferred stock rating affirmed at B1(hyb)

.... Outlook remains stable

Issuer: China Cinda Finance (2014) Limited

.... BACKED senior unsecured local currency long term note rating affirmed at Baa1

.... Outlook remains stable

Issuer: China Cinda Finance (2015) I Limited

.... BACKED senior unsecured local currency long term note rating affirmed at Baa1

.... BACKED senior unsecured long term and short term local currency MTN program ratings affirmed at (P)Baa1/(P)P-2

.... Outlook remains stable

Issuer: China Cinda Finance (2015) II Limited

.... BACKED senior unsecured long term and short term local currency MTN program ratings affirmed at (P)A3/(P)P-2

.... Outlook remains stable

Issuer: China Cinda Finance (2017) I Limited

.... BACKED senior unsecured local currency long term note rating affirmed at Baa1

.... BACKED senior unsecured long term and short term local currency MTN program ratings affirmed at (P)Baa1/(P)P-2

.... Outlook remains stable

Issuer: China Cinda Finance (2017) II Limited

.... BACKED senior unsecured long term and short term local currency MTN program ratings affirmed at (P)A3/(P)P-2

.... Outlook remains stable

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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.

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.

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.

Sean Hung, CFA
Vice President - Senior 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

Yat Man Sally Yim, 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.
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