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At the same time, Moody's has withdrawn the outlooks on these leasing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
