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Rating Action:

Moody's affirms Cinda Asset Management's A3 issuer rating; outlook remains negative

 The document has been translated in other languages

02 Jun 2016

Hong Kong, June 02, 2016 -- Moody's Investors Service has affirmed China Cinda Asset Management Co., Ltd.'s (Cinda AMC) A3 long-term issuer rating and P-2 short-term issuer rating.

The negative outlook on the long-term rating is maintained.

At the same time, Moody's has confirmed the company's ba2 standalone baseline credit assessment (BCA).

These actions conclude Moody's review—with direction uncertain—on Cinda AMC's ba2 BCA. The review was initiated on 28 August 2015, after the company announced that it would acquire all the issued shares of Nanyang Commercial Bank, Ltd. (NYCB, deposit A3 negative, BCA baa2) from Bank of China (Hong Kong) Limited (BOC (Hong Kong) (deposit Aa3 negative, BCA a2)).

Moody's has withdrawn the company's ba2 adjusted BCA for business reasons, and also because the company lacks affiliate support.

The full list of affected ratings, including the medium term note (MTN) program ratings and note ratings of Cinda AMC's subsidiaries, is listed at the end of this press release.

RATINGS RATIONALE

The affirmation of Cinda AMC's A3 issuer ratings reflects Moody's assumption of a very high probability of support from the Government of China (Aa3 negative) for the company in times of need. Moody's has incorporated five notches of uplift to Cinda AMC's BCA to arrive at its final rating of A3.

The confirmation of Cinda AMC's BCA of ba2 takes into consideration that the strain on its consolidated leverage arising from the acquisition of NYCB. Nevertheless, Moody's notes that the company has a concrete to plan to issue preference shares, manager its business growth and restructure its business segments to mitigate its leverage and capital adequacy pressure.

The acquisition of NYCB, for a consideration of HKD68 billion and involving goodwill of about HKD30 billion, is a sizeable acquisition for Cinda AMC. The transaction was initially funded entirely by debt and internal resources. As a result, Moody's estimates that Cinda AMC's consolidated tangible common equity to tangible managed assets dropped to around 8% after the acquisition from more than 14%.

Moody's notes that, on 10 May 2016, Cinda AMC announced that it would issue up to RMB30 billion in preference shares in 2H2016. The issuance will mitigate company's capital adequacy pressure. Nonetheless, there is execution risk associated with such a plan. Moody's considers that if the issuance has any difficulties or delays, it would have a negative impact on the company's capital adequacy and standalone credit profile.

Cinda AMC has grown very rapidly in recent years. Its total consolidated assets increased to RMB714 billion at end-2015 from RMB255 billion at end-2012. Cinda AMC stands to benefit further from business opportunities in its asset management business, given the continuing increase in non-performing loans at Chinese financial institutions. Capitalizing on these opportunities creates capital and funding challenges for Cinda AMC and other Chinese asset management companies, because new distressed assets will likely originate more rapidly than Cinda AMC can resolve at this stage of the cycle.

Nonetheless, Moody's notes that Cinda AMC has adjusted its business strategy to manage the company's growth. For example, since 2H2014, the company has controlled the pace of growth for its restructured distressed asset management business. The total gross assets of this business only increased slightly to RMB169 billion at end-2015 from RMB162 billion at end-June 2014. Expectations that the rapid growth rate of recent years will moderate have been important considerations in the confirmation of the ba2 BCA.

As for NYCB's operations, the bank has a solid franchise in Hong Kong and a meaningful, if modest, branch network in China. It also demonstrates strong capital levels, satisfactory asset quality and sound liquidity.

The acquisition of NYCB will therefore strengthen Cinda AMC's overall consolidated risk profile. However, Moody's believes that NYCB will contribute only modestly to Cinda AMC's debt servicing capacity for now, because as an entity regulated by the Hong Kong Monetary Authority, NYCB will face restrictions on its ability to directly fund its parent and other affiliates.

China's Ministry of Finance (MOF) is Cinda AMC's single largest shareholder, with a 67.84% stake. The National Social Security Fund owns another 8.19% stake in the company.

Moody's notes that Cinda AMC plays an important role as one of four distressed asset management companies in China. These companies were established by the MOF in 1999.

Moody's believes that Cinda AMC will continue to play an important strategic role in helping to resolve the challenge for the economy of rising non-performing loans.

As a result, Moody's has incorporated five notches of government support—an important consideration in the affirmation of its ratings—to reflect the very high dependence and probability of support that Moody's believes Cinda AMC will receive from the Chinese government in times of need.

The company's long-term issuer rating carries a negative outlook, mirroring the negative outlook on China's Aa3 sovereign rating.

What Could Change the Rating -- Up

Given the negative outlook on the company's long-term rating, an upgrade of Cinda AMC's ratings over the next 12-18 months is unlikely. The outlook could be revised to stable if the outlook on the Chinese government's sovereign rating is revised to stable.

Cinda AMC's BCA could experience upward pressure if:

(1) Cinda AMC strengthens its balance sheet through capital raising, such that its tangible common equity/tangible managed assets exceeds 12%, and it increases materially its proportion of long-term relative to short-term funding, with short-term funding below 40% of total interest bearing liabilities;

(2) Cinda AMC continues to maintain strong profitability during the current cycle of rising non-performing loans in the Chinese economy; and

(3) Cinda AMC's integration with NYCB progresses smoothly such that there are tangible benefits to Cinda AMC's credit profile.

What Could Change the Rating -- Down

Cinda AMC's ratings could experience downward pressure if: (1) there are signs of weakened government support for the company, such as a material reduction in government ownership, and (2) China's economic growth slows substantially, leading to pressure on the company's asset quality.

The company's BCA will be lowered if:

(1) Cinda AMC's communicated plan to strengthen its balance sheet by raising RMB30 billion of preference shares fails to be executed by early 2017 at the latest;

(2) Cinda AMC continues to grow its assets rapidly, resulting in deteriorating solvency such that its tangible common equity/tangible managed assets falls below 8%, and/or

(3) Cinda AMC's profitability and asset quality weaken as a result of declining valuations on its asset holdings relative to the acquisition cost.

PRINCIPAL METHODOLOGY

The methodologies used in these ratings were Finance Companies published in October 2015, and Government-Related Issuers published in October 2014. Please see the Ratings Methodologies page on www.moodys.com for a copy of these methodologies.

Moody's has withdrawn the rating for its own business reasons. Please refer to the Moody's Investors Service's Policy for Withdrawal of Credit Ratings, available on its website, www.moodys.com.

China Cinda Asset Management Co., Ltd. is one of four major distressed asset management companies in China. Headquartered in Beijing, it reported consolidated assets of RMB714 billion at end-2015.

LIST OF AFFECTED RATINGS

Issuer: China Cinda Asset Management Co., Ltd.

.... BCA confirmed at ba2

.... Adjusted BCA withdrawn

.... Local currency and foreign currency long term issuer rating affirmed at A3 with negative outlook

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

.... The negaitve outlook is maintainted

Issuer: China Cinda Finance (2014) Limited

.... BACKED senior unsecured rating affirmed at Baa1 with negative outlook

.... The negaitve outlook is maintainted

Issuer: China Cinda Finance (2015) I Limited

.... BACKED senior unsecured rating affirmed at Baa1 with negative outlook

.... BACKED Senior Unsecured MTN programme ratings affirmed at (P)Baa1/(P)P-2

.... The negaitve outlook is maintainted

Issuer: China Cinda Finance (2015) II Limited

.... BACKED Senior Unsecured MTN programme ratings affirmed at (P)A3/(P)P-2

.... The negaitve outlook is maintainted

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.

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
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
SUBSCRIBERS: (852) 3551-3077

Stephen Long
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (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
SUBSCRIBERS: (852) 3551-3077

Moody's affirms Cinda Asset Management's A3 issuer rating; outlook remains negative
No Related Data.
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