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Rating Action:

Moody's affirms four Chinese distressed asset management companies' A3 ratings; revises outlook to stable

 The document has been translated in other languages

02 Nov 2016

Hong Kong, November 02, 2016 -- Moody's Investors Service has today affirmed the A3 long-term and P-2 short-term issuer ratings of four Chinese distressed asset management companies (AMCs):

• China Cinda Asset Management Co., Ltd. (Cinda AMC)

• China Huarong Asset Management Co., Ltd. (Huarong AMC)

• China Orient Asset Management Co., Ltd. (Orient AMC)

• China Great Wall Asset Management Corporation (Great Wall AMC)

Their baseline credit assessments (BCAs) remain unchanged.

At the same time, Moody's has changed the outlook on the four companies to stable from negative.

Moody's has also affirmed the medium term note (MTN) program ratings and note ratings issued by the companies' offshore subsidiaries and changed the outlook to stable from negative.

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

RATINGS RATIONALE

The primary drivers for the change in the outlooks to stable from negative on the big four AMCs' A3 long-term issuer ratings are:

(1) Government support for these companies is unlikely to change over the medium term

(2) Each company's rating is resilient to a hypothetical downside scenario in which the sovereign rating is downgraded by one notch. We considered this scenario in view of the current negative outlook on the sovereign rating, and which is a key input into the ratings of the four AMCs' respective support providers

(3) The companies' standalone credit profiles, as indicated by their BCAs in the case of GRIs are appropriate at current levels

The Chinese government (Aa3, negative) -- through the Ministry of Finance (MOF) -- is the single largest shareholder of these big four AMCs, which have been going through different stages of commercialization. This majority shareholding by MOF will likely continue.

Moody's believes that the big four AMCs have a strategic role in economic rebalancing and maintaining the stability of the financial system. Their important role -- in relation to distressed asset management, the banking system and the overall economy -- is likely to increase as China's economy continues to restructure.

In 1H2016, the regulators enhanced the capacity of the big four AMCs to absorb the distressed assets of financial institutions by lowering the risk weighting of traditional distressed assets and restructuring distressed assets acquired from financial institutions to 50% and 75% respectively, from 100%.

Moreover, the new market-based debt-to-equity swap policy -- as announced by the National Development and Reform Commission on 10 October 2016 -- has reiterated the important role of the AMCs in the deleveraging of Chinese corporates. While regulators have allowed more local AMCs to be established, we believe these local AMCs are not directly competing with the big four AMCs due to their limitations on business scope and funding source.

As a result, Moody's believes the big four AMCs' ratings will continue to incorporate five to six-notch uplift based on the likelihood of very high support from the Chinese government; an important consideration in their rating affirmation, despite pressure on the sovereign rating. Given that the sovereign rating currently has a negative outlook, we conducted a hypothetical stress test in which we considered the impact on the AMCs' ratings if the sovereign rating was lowered by one notch. We concluded that their ratings have sufficient headroom -- under our JDA approach -- to withstand such a development.

• Cinda AMC

Cinda AMC's BCA of ba2 is unchanged. While the company's consolidated leverage has increased due to its acquisition of Nanyang Commercial Bank, Ltd., it issued USD3.2 billion in preference shares in late September 2016 to replenish its capital. Moreover, it adjusted its business strategy to manage growth in 1H2016, which could also ease capital adequacy pressures; an important consideration in the affirmation of its ba2 standalone credit strength.

• Huarong AMC

Huarong AMC's BCA of ba3 is unchanged. While the company completed its initial public offering in Hong Kong and raised HKD18 billion (USD2.3 billion) in gross new capital, it also showed rapid growth in 1H2016. Total assets in 1H2016 increased by 24% from end-2015 to RMB1,073 billion, driven by 29% growth in its distressed asset management business, as well as 43% growth in its investment and asset management business. These developments have pressured its capital adequacy.

• Orient AMC

Orient AMC's BCA of ba3 is unchanged. In 1H2016, the company completed its RMB15 billion acquisition of a 50.23% stake in the Bank of Dalian (unrated) and the RMB10 billion purchase of the bank's non-performing loans. This acquisition could drag down the overall asset quality and capital adequacy of Orient AMC. However, the company completed a reform of its shareholding structure in late September 2016. A RMB1.1 billion additional capital injection from the Social Security Fund could slightly enhance capital adequacy. The company could potentially raise capital from strategic investors.

• Great Wall AMC

Great Wall AMC's BCA of ba3 is unchanged. The company's core business is distressed asset management. While it has also established multiple financial services subsidiaries to facilitate its core business, the sizes of these subsidiaries are relatively small when compared with the other three AMCs. Great Wall AMC has not yet completed its joint-stock restructuring. At end-June 2016, it reported a capital adequacy ratio of 15.9% at the parent company level.

• MTN Programs of AMCs

For all four AMCs, the rating affirmations on their MTN programs and the notes of their offshore platforms under keepwell structures reflect the consideration that Moody's is likely to maintain a one-notch difference between the four AMCs' long-term issuer ratings and their respective offshore platforms' notes and programs' ratings. This is because the latter are only supported by keepwell agreements.

The one-notch differential also reflects the uncertainty regarding (1) the priority of claims for note holders -- relative to the AMCs' senior unsecured creditors -- in the absence of a guarantee from the AMCs, and (2) the ability of the keepwell provider to obtain approval to transmit resources to the offshore platform, given China's capital controls.

What Could Make the Ratings Go Up/Down

The ratings for these distressed asset management companies could be upgraded if: (1) Moody's believes that support from the central government will strengthen in the event that their activities assume greater strategic importance; and/or (2) their standalone credit profiles significantly strengthen (please refer to each issuer's Credit Opinion for further detail).

On the other hand, their ratings could be downgraded if: (1) Moody's believes that support from the central government will weaken in the event that these companies become engaged in more commercial-type activities and face more concrete competition from potentially growing number of platforms or companies engaged in similar distressed asset management business, therefore weakening their strategic importance; and/or (2) their standalone credit profiles significantly deteriorate (please refer to each issuer's Credit Opinion for further detail).

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

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 RMB1,009 billion at end-June 2016.

China Huarong Asset Management Co., Ltd. is one of four major distressed asset management companies in China. Headquartered in Beijing, it reported consolidated assets of RMB1,073 billion at end-June 2016.

China Orient Asset Management Co., Ltd. is one of four major distressed asset management companies in China. Headquartered in Beijing, it reported consolidated assets of RMB411 billion at end-2015.

China Great Wall Asset Management Corporation is one of four major distressed asset management companies in China. Headquartered in Beijing, it reported consolidated assets of RMB365.7 billion at end-2015.

LIST OF AFFECTED RATINGS

Issuer: China Cinda Asset Management Co., Ltd. (Lead analyst: Sean Hung)

.... Local currency and foreign currency long term issuer rating affirmed at A3, Outlook changed to stable from negative

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

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

.... Outlook changed to stable from negative

Issuer: China Cinda Finance (2014) Limited (Lead analyst: Sean Hung)

.... BACKED senior unsecured local currency long term note rating affirmed at Baa1, Outlook changed to stable from negative

.... Outlook changed to stable from negative

Issuer: China Cinda Finance (2015) I Limited (Lead analyst: Sean Hung)

.... BACKED senior unsecured local currency long term note rating affirmed at Baa1, Outlook changed to stable from negative

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

.... Outlook changed to stable from negative

Issuer: China Cinda Finance (2015) II Limited (Lead analyst: Sean Hung)

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

.... Outlook changed to stable from negative

Issuer: China Huarong Asset Management Co., Ltd. (Lead analyst: Sean Hung)

.... Local currency and foreign currency long term issuer rating affirmed at A3, Outlook changed to stable from negative

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

.... Outlook changed to stable from negative

Issuer: Huarong Finance Co. Ltd. (Lead analyst: Sean Hung)

.... BACKED senior unsecured local currency long term note rating affirmed at Baa1, Outlook changed to stable from negative

.... Outlook changed to stable from negative

Issuer: Huarong Finance II Co., Ltd (Lead analyst: Sean Hung)

.... BACKED senior unsecured local currency long term perpetual bond rating affirmed at Baa1(hyb), Outlook changed to stable from negative

.... BACKED senior unsecured local currency long term note rating affirmed at Baa1, Outlook changed to stable from negative

.... BACKED senior unsecured long term local currency MTN program ratings affirmed at (P)Baa1

.... Outlook changed to stable from negative

Issuer: China Orient Asset Management Co., Ltd. (Lead analyst: Sean Hung)

.... Local currency and foreign currency long term issuer rating affirmed at A3, Outlook changed to stable from negative

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

.... Outlook changed to stable from negative

Issuer: Charming Light Investments Ltd. (Lead analyst: Sean Hung)

.... BACKED senior unsecured local currency long term note rating affirmed at Baa1, Outlook changed to stable from negative

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

.... Outlook changed to stable from negative

Issuer: United Wealth Development Ltd. (Lead analyst: Sean Hung)

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

Issuer: China Great Wall Asset Management Corporation (Lead analyst: David Yin)

.... Local currency and foreign currency long term issuer rating affirmed at A3, Outlook changed to stable from negative

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

.... Outlook changed to stable from negative

Issuer: China Great Wall International Holdings III Limited (Lead analyst: David Yin)

.... BACKED senior unsecured local currency long term note rating affirmed at Baa1, Outlook changed to stable from negative

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

.... Outlook changed to stable from negative

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.

The below contact information is provided for information purposes only. Please see the ratings tab of the issuer page at www.moodys.com, for each of the ratings covered, Moody's disclosures on the lead analyst and the Moody's legal entity that has issued the ratings.

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

Minyan Liu
Associate Managing Director
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

No Related Data.
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