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Rating Action:

Moody's affirms Everbright Securities' ratings, changes outlook to stable

 The document has been translated in other languages

08 Apr 2019

Hong Kong, April 08, 2019 -- Moody's Investors Service ("Moody's") has affirmed Everbright Securities Company Limited's Baa3 long-term issuer rating and P-3 short-term issuer rating. At the same time, Moody's has changed the outlook to stable from positive.

Outlook Actions:

..Issuer: Everbright Securities Company Limited

.Outlook, Changed to Stable from Positive

Affirmations:

..Issuer: Everbright Securities Company Limited

.Long-term issuer rating: Baa3

.Short-term issuer rating: P-3

RATINGS RATIONALE

The change of Everbright Securities' outlook to stable from positive reflects the weakening of the company's financial profile driven by reduced profitability and increased earnings volatility. The company has recorded a loss of approximately RMB1.5 billion from a private equity investment, which lowered its 2018 profitability significantly. In addition, such a large loss exposes weaknesses in the company's risk management and internal controls. In fact, the company has received notices from the regulators asking for rectification of its risk management and internal controls in relation to this incident. As a result, Moody's has lowered the company's standalone assessment to Ba3 from Ba2.

The affirmation of Everbright Securites' Baa3/P-3 issuer ratings reflects Moody's continuing expectation for a very high level of affiliate support from China Everbright Group (unrated) as well as a high level of support from Government of China (A1 Stable) in times of stress, which offsets against the weakening of Everbright Securities' standalone assessment. The very high probability of affiliate support from China Everbright Group takes into account the company's strategic importance to the group. In addition, there is a high probability that Everbright Securities will benefit from support from Government of China (A1 Stable) given Everbright Securities' position as a medium-sized securities firm in China by total assets and China Everbright Group's position as a key state-owned financial conglomerate.

On a standalone basis, Everbright Securities has maintained high liquidity and capital positions. The company has improved its liquidity management by increasing its long-term funding sources, including long-term debt and equity, to support its business growth in the past several years. It has also gradually diversified its income mix from brokerage into wealth management, investment banking, margin financing and securities lending, as well as stock-pledged repurchase agreement businesses. That said, the company's risk appetite ratio has increased as a result of rapid expansion into new businesses in recent years.

WHAT COULD MOVE THE RATINGS UP/DOWN

Everbright Securities' ratings could be upgraded if the company can: (1) improve its track record of risk management; (2) control the risks associated with business growth without any material impact on its overall financial profile; and (3) slow its liability growth to a level in line with the sector average.

Everbright Securities' ratings could be downgraded if Moody's assesses that the willingness and ability of the government and the willingness and ability of China Everbright Group and its affiliates to support the company have weakened.

Everbright Securities' ratings could also be downgraded if it (1) encounters further material risk management issues; (2) becomes subject to regulatory sanctions that impair its franchise and management stability; or (3) experiences a material weakening in its financial position, for example, because of significant investment losses, a substantial increase in leverage or deterioration in its liquidity position.

The principal methodology used in these ratings was Securities Industry Market Makers published in June 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Headquartered in Shanghai, China, Everbright Securities Company Limited reported consolidated assets of RMB206 billion as of the end of 2018.

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 entity is participating and the rated entity or its agent(s) generally provides 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.

Lan Wang
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
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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