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Rating Action:

Moody's affirms ratings of six Chinese and Hong Kong leasing companies on application of new Finance Companies Rating Methodology

 The document has been translated in other languages

11 Dec 2018

Hong Kong, December 11, 2018 -- Moody's Investors Service has today affirmed the ratings of six leasing companies in China (A1 stable) and Hong Kong (Aa2 stable).

The outlooks on these leasing companies remain stable.

These rating actions follow the publication of Moody's new Finance Companies rating methodology, which now is the primary methodology that Moody's uses to rate finance companies globally, except in jurisdictions where certain regulatory requirements must be fulfilled prior to the new methodology's implementation.

The six companies include five domiciled in mainland China and one in Hong Kong:

• China Development Bank Financial Leasing Co., Ltd. (CDB Leasing)

• ICBC Financial Leasing Co., Ltd. (ICBC Leasing)

• Bank of Communications Financial Leasing Co., Ltd. (BoCom Leasing)

• CCB Financial Leasing Corporation Ltd. (CCB Leasing)

• CMB Financial Leasing Co., Ltd. (CMB Leasing)

• Bocom Leasing Development HK Co. Ltd. (BLDHK)

Moody's has also affirmed the ratings for the medium-term note (MTN) programs and the ratings for the notes issued by these leasing companies' offshore fund raising vehicles.

And, Moody's has raised the standalone assessments of these five leasing companies in China to ba2 from ba3, and affirmed the standalone assessment of BLDHK at b2.

At the same time, Moody's has withdrawn the outlooks on these leasing companies' long-term issuer ratings where applicable, and their offshore fund raising vehicles' backed senior unsecured note ratings where applicable, for business reasons. Over the course of the next year, Moody's will be withdrawing all instrument level outlooks for entities rated under the Finance Companies Rating Methodology. Please refer to the Moody's Investors Service's Policy for Withdrawal of Credit Ratings, available on its website, www.moodys.com.

Moody's has also changed the outlooks of these fund raising vehicles to "no outlook" from stable, since they have no issuer ratings.

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

RATINGS RATIONALE

Moody's rating actions on the six leasing companies follow the publication of Moody's new Finance Companies rating methodology and were driven by revisions of their standalone profile as reflected by changes to the companies' standalone assessments, resulting from the significant changes and enhancements from Moody's previous rating methodology for rating these firms. These changes and enhancements for rating finance companies include the introduction of new financial ratios such as a net charge-offs ratio and a debt maturity coverage ratio, the dynamic weighting of operating environment conditions that can adversely influence firms' creditworthiness, and the incorporation of specific qualitative factors as direct notching adjustments to ratings.

Reflecting the new Finance Companies methodology, Moody's rating actions on the six leasing companies generally reflect the following considerations:

(1) Standalone assessment

The standalone assessments of the five leasing companies (CDB Leasing, ICBC Leasing, BoCom Leasing, CCB Leasing and CMB Leasing) in China have been raised to ba2 from ba3, reflecting (1) their franchises in China's growing leasing industry, and (2) stable financial position in the past few years, including moderate profitability, stable asset quality and strong access to funding.

However, their standalone assessments are constrained by (1) the increasing funding cost that negatively impacts their profitability; (2) a maturity mismatch between assets and liabilities which poses refinancing risk; (3) some companies' exposure to local government-related entities; and (4) the residual value risk associated with the increasing proportion of operating leasing that challenges their risk management and capital strength.

The b2 standalone assessment of BLDHK reflects the company's short operating history, as well as its weak financial position, because it functions as an offshore treasury arm of BoCom Leasing.

(2) Operating environment

The business model adopted by the leasing sector is transparent and straightforward in China. Moreover, the regulatory framework has been streamlined to strengthen supervision on leasing companies; a development which is positive to the development of the industry. Nonetheless, the operating environment for the Chinese leasing industry is constrained by keen competition with low entry barriers, weak pricing strength, moderate exposure to the broader economic cycle and rapid asset growth.

(3) Affiliate and government supports

For the bank-affiliated leasing companies, the affiliate-backed support and very high or government-backed level of government support, which are key inputs into the JDA framework incorporated in the new finance companies rating methodology, consider these companies' ownership structures, integration with their parent banks, the explicit inclusion of liquidity and capital commitments from parent banks in the articles of association of the leasing companies and the parent banks' systemic importance.

These bank-affiliated leasing companies are strategically important to and closely integrated with their parent banks. A failure by the parent banks to support the leasing companies, in times of need, would raise significant business, operational and reputational risks for the parent banks.

Moody's also says there is a very high or government-backed level of indirect support from the Chinese government for these leasing companies through their parent banks, if needed, given the Chinese government's majority ownership of the parent banks, the parent banks' systemic importance or policy function, and the leasing companies' importance to their parent banks' business strategy.

The stable outlooks on these six leasing companies suggest that these companies do not face immediate pressure on their standalone assessments. Government and affiliate support for these firms are also unlikely to change over the medium term.

FIRM-SPECIFIC CONSIDERATIONS

CDB Leasing

The affirmation of CDB Leasing's issuer ratings incorporates the company's 1) standalone assessment of ba2; and 2) a seven-notch uplift based on a government-backed level of indirect support from the Government of China via its parent, China Development Bank (CDB, A1 stable) in times of stress, given that CDB is a policy bank wholly owned by the Chinese government and considering CDB Leasing's importance to CDB's business strategy.

ICBC Leasing

The affirmation of ICBC Leasing's issuer ratings takes into account the company's 1) standalone assessment of ba2; 2) a four-notch uplift based on an affiliate-backed level of affiliate support from its parent, Industrial & Commercial Bank of China Ltd (ICBC, A1 stable, Baseline Credit Assessment: baa1); and 3) a three-notch uplift based on a very high level of indirect support from the Government of China (A1 stable) via its parent, in times of stress.

BoCom Leasing

The affirmation of BoCom Leasing's issuer ratings takes into account the company's 1) standalone assessment of ba2; 2) a two-notch uplift based on an affiliated-backed level of affiliate support from its parent, Bank of Communications Co., Ltd (BoCom, A2 stable, Baseline Credit Assessment: baa3); and 3) a four-notch uplift based on a very high level of indirect support from the Government of China (A1 stable) via its parent, in times of stress.

CCB Leasing

The affirmation of CCB Leasing's issuer ratings takes into account the company's 1) standalone assessment of ba2; 2) a four-notch uplift based on Moody's assumption of affiliate-backed level of affiliate support from its parent, China Construction Bank Corporation (CCB, A1 stable, Baseline Credit Assessment: baa1) and 3) a three-notch uplift based on a very high level of indirect support from the Government of China via its parent, in times of stress.

CMB Leasing

The affirmation of CMB Leasing's issuer ratings takes into account the company's high integration and close links with its parent, China Merchant Bank Co., Ltd. (CMB, A3 stable, Baseline Credit Assessment: baa3). CMB Leasing's A3 long-term issuer rating incorporates the company's 1) standalone assessment of ba2; 2) a two-notch uplift based on Moody's assumption of affiliate-backed level of affiliate support from its parent, CMB; and 3) a three-notch uplift based on a very high level of indirect support from the Government of China via its parent, in times of stress.

BLDHK

The affirmation of BLDHK's A3 issuer rating primarily reflects (1) BLDHK's integral role and strategic importance to BoCom Leasing's offshore leasing business as a financing and treasury platform; (2) BoCom's liquidity and capital commitments to BoCom Leasing; and (3) a keepwell agreement provided by BoCom Leasing, while BLDHK has a relatively short history and weak standalone credit profile of b2.

The one-notch differential between BoCom Leasing's A2 issuer rating and BLDHK's A3 issuer rating reflects (1) the absence of a direct guarantee from BoCom Leasing; and (2) the potential risks associated with obtaining the approval to remit funds.

WHAT COULD MOVE THE RATING UP/DOWN

CDB Leasing, ICBC Leasing, BoCom Leasing, CCB Leasing and CMB Leasing

Because these leasing companies' ratings are aligned with the ratings of their parent banks, based on Moody's affiliate-backed support and very high or government-backed level of government support assumptions on these leasing companies, an upgrade or downgrade of their parent banks' ratings would likely result in an upgrade or downgrade of the leasing companies' ratings.

Moody's could also downgrade the ratings of these leasing companies if Moody's observes (1) a weakening in liquidity and capital support from the parent banks; (2) a decline in the business relationship with and management control of the parent banks; or (3) a significant reduction in the parent banks' stake in the leasing companies to below 50.1%.

Moody's could raise these leasing companies' standalone assessments if the companies maintain good asset quality, reduces the tenor mismatch between their assets and liabilities, improves their profitability and strengthens their capital ratios relative to managed assets.

Moody's could lower these leasing companies' standalone assessments if the companies show (1) deteriorating asset quality and rising credit costs; (2) weakening liquidity and funding profiles; and/or (3) weakening capital levels.

BLDHK

An upgrade of BoCom Leasing's issuer ratings, or the provision of a direct guarantee, could trigger an upgrade of BLDHK's issuer ratings. Moody's could raise the company's standalone credit profile if it improves its profitability and capital adequacy. However, a strengthening in its standalone credit profile will not necessarily translate into an upgrade, because the issuer ratings already benefits from multiple notches of support.

BLDHK's ratings could be downgraded if (1) BoCom Leasing's issuer ratings are downgraded or (2) BoCom Leasing's ability and willingness to support BLDHK weakens, or there is a material adverse change in capital account regulations, which would limit BoCom Leasing's ability to provide timely cross-border support to BLDHK to meet payment obligations.

The principal methodology used in these ratings was Finance Companies published in December 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

LIST OF AFFECTED RATINGS:

China Development Bank Financial Leasing Co., Ltd. (Lead Analyst: Sean Hung)

.... Local currency and foreign currency long term and short term issuer ratings affirmed at A1/P-1, withdrawing the stable outlook for the long term issuer ratings

.... Senior unsecured long term and short term foreign currency MTN program ratings affirmed at (P)A1/(P)P-1

. Outlook remains stable

CDBL Funding 1 (Lead Analyst: Sean Hung)

.... BACKED senior unsecured foreign currency long term note ratings under a keepwell structure affirmed at A2, withdrawing the stable outlook

.... BACKED senior unsecured long term and short term foreign currency MTN program ratings under a guarantee structure affirmed at (P)A1/(P)P-1

.... BACKED senior unsecured long term and short term foreign currency MTN program ratings under a keepwell structure affirmed at (P)A2/(P)P-1

. Outlook changed to no outlook from stable

CDBL Funding 2 (Lead Analyst: Sean Hung)

.... BACKED senior unsecured foreign currency long term note ratings under a keepwell structure affirmed at A2, withdrawing the stable outlook

.... BACKED senior unsecured long term and short term foreign currency MTN program ratings under a keepwell structure affirmed at (P)A2/(P)P-1

. Outlook changed to no outlook from stable

ICBC Financial Leasing Co., Ltd. (Lead Analyst: Sean Hung)

.... Local currency and foreign currency long term and short term issuer ratings affirmed at A1/P-1, withdrawing the stable outlook for the long term issuer ratings

. Outlook remains stable

ICBCIL Finance Co. Limited (Lead Analyst: Sean Hung)

.... BACKED senior unsecured foreign currency long term note ratings under a keepwell structure affirmed at A2, withdrawing the stable outlook

.... BACKED senior unsecured long term foreign currency MTN program rating under a keepwell structure affirmed at (P)A2

. Outlook changed to no outlook from stable

Bank of Communications Financial Leasing Co., Ltd. (Lead Analyst: Sean Hung)

.... Local currency and foreign currency long term and short term issuer ratings affirmed at A2/P-1

. Outlook remains stable

Azure Nova International Finance Limited (Lead Analyst: Sean Hung)

.... BACKED senior unsecured foreign currency long term note ratings under a guarantee structure affirmed at A2

.... BACKED senior unsecured long term foreign currency MTN program rating under a guarantee structure affirmed at (P)A2

. Outlook changed to no outlook from stable

CCB Financial Leasing Corporation Ltd. (Lead Analyst: David Yin)

. Local currency and foreign currency long term and short term issuer ratings affirmed at A1/P-1, withdrawing the stable outlook for the long term issuer ratings

. Outlook remains stable

CCBL (Cayman) 1 Corporation Limited (Lead Analyst: David Yin)

. BACKED senior unsecured long term and short term foreign currency MTN program ratings under a keepwell structure affirmed at (P)A2/(P)P-1

.... BACKED senior unsecured foreign currency long term note ratings under a keepwell structure affirmed at A2, withdrawing the stable outlook

. Outlook changed to no outlook from stable

CCBL (Cayman) Corporation Limited (Lead Analyst: David Yin)

.... BACKED senior unsecured long term foreign currency note rating under a keepwell structure affirmed at A2, withdrawing the stable outlook

.... Outlook changed to no outlook from stable

CMB Financial Leasing Co., Ltd. (Lead Analyst: David Yin)

. Local currency and foreign currency long term and short term issuer ratings affirmed at A3/P-2

. Outlook remains stable

CMBLEMTN 1 Limited (Lead Analyst: David Yin)

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

.... BACKED senior unsecured local currency note ratings affirmed at A3

.... Outlook changed to no outlook from stable

Bocom Leasing Development HK Co. Ltd. (Lead Analyst: Sean Hung)

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

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 rating analyst and the Moody's legal entity that has issued the ratings.

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.

David Yin
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
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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