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Rating Action:

Moody's assigns A3 to CITIC Group's Japanese Yen notes

 The document has been translated in other languages

19 Oct 2016

Hong Kong, October 19, 2016 -- Moody's Investors Service has assigned an A3 senior unsecured rating to CITIC Group Corporation's proposed Japanese Yen notes.

At the same time, Moody's has affirmed CITIC Group's A3 issuer rating, CITIC Limited's A3 issuer and senior unsecured ratings and the (P)A3 rating on CITIC Limited's Medium Term Notes (MTN) program.

The ratings outlook remains negative.

The proceeds will be used for the working capital and general corporate purposes of CITIC Group and its subsidiaries.

RATINGS RATIONALE

"The affirmation of CITIC Group and CITIC Limited's A3 ratings reflects our view that their underlying credit strength can withstand a moderate deterioration in the credit profile of China CITIC Bank Corporation Limited (CITIC Bank, Baa2 stable)," says Joe Morrison, a Moody's Vice President and Senior Credit Officer, and also the International Lead Analyst for CITIC Group and CITIC Limited.

On 17 October, Moody's downgraded CITIC Bank's long-term deposit rating to Baa2 from Baa1, and at the same time downgraded its adjusted baseline credit assessment (BCA) to ba2 from ba1.

This rating action has resulted in pressure on CITIC Group's BCA and CITIC Limited's standalone credit strength, as CITIC Bank accounts for the majority of their assets, revenue and profits.

"However, the improvements in CITIC Limited's non-financial services businesses and in the financial profile of the holding company partially offset this negative impact," says Kai Hu, a Moody's Senior Vice President and the Local Market Analyst for CITIC Group and CITIC Limited.

The overall credit profile of CITIC Limited's non-financial businesses has been improving since the group's restructuring in 2014. The total reported debt of its non-financial segments fell to about HKD238 billion as of end-1H 2016, down around HKD85 billion from end-2014.

The business risk and capex needs associated with these businesses have also reduced, as the result of (1) the transfer of the residential property business to China Overseas Land & Investment Limited (COLI, Baa1 stable), and (2) the nearing completion of the Sino Iron project.

"Additionally, a moderate deterioration in CITIC Bank's credit profile is unlikely to result in a capital call on CITIC Group, given CITIC Bank's strong access to the equity and debt capital markets," says Hu. "Should CITIC Bank nevertheless require a capital injection, then CITIC Limited would be able to afford a minor dilution of its high 65.83% stake in CITIC Bank to attract third party equity investment."

We expect that CITIC Limited's adjusted debt/EBITDA will be around 7.0x for 2016, a level that is high for its rating. Our estimation deconsolidates CITIC Banks' debt, while adjusted EBITDA only includes the expected cash dividends from CITIC Bank based on the average received in 2012-2014.

CITIC Group's A3 issuer rating reflects its ba1 baseline credit assessment (BCA), and a four-notch uplift due to our expectation that the company will receive a high level of support from the Chinese government (Aa3 negative) in times of need.

CITIC Group's BCA is underpinned by the standalone credit strength of CITIC Limited, which accounts for over 90% of CITIC Group's total assets, revenue, and profits.

CITIC Limited's standalone credit profile in turn is underpinned by its broad lines of business, which provide diversification benefits, and its sound access to the capital and bank markets, due to its position as a key listed subsidiary of a high profile central SOE. Such credit strengthens are partially offset by its complex group structure and relatively high leverage.

The negative outlook mainly reflects the weakened credit profile of CITIC Bank and the uncertainty that group will lower its leverage in the next 12 to 18 months.

In view of the negative outlook, Moody's does not expect any rating upgrade pressure in the near term.

A return of CITIC Group and CITIC Limited's rating outlook to stable could be considered if the credit profile and leverage of CITIC Group and CITIC Limited's other non-financial businesses have a further evident improvement to offset the pressure from deterioration of CITIC Bank's credit quality.

On the other hand CITIC Group's issuer rating could be downgraded if: 1) the credit profile of CITIC Bank deteriorates further, which we do not expect in the near term given its current stable outlook; 2) the deleverage trend of its non-financial businesses and holding company is unlikely to continue; or 3) there are signs of weakening support from the Chinese government.

The principal methodology used in rating CITIC Limited was Business and Consumer Service Industry published in October 2016. The principal methodologies used in rating CITIC Group Corporation were Business and Consumer Service Industry published in October 2016. Other methodologies used include the Government-Related Issuers methodology published in October 2014. Please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

CITIC Group Corporation is a large conglomerate with a portfolio of financial and non-financial businesses that is wholly owned by China's State Council. At end June 2016, CITIC Group owned 58.13% of CITIC Limited (A3 negative). CITIC Limited — formerly CITIC Pacific — is listed on the Hong Kong Stock Exchange.

CITIC Limited's business portfolio is highly diversified, with operations in industries including commercial banking, brokerage, iron ore mining, steel, property, manufacturing, and infrastructure. At end June 2016, its consolidated assets totaled HKD7.3 trillion, and its consolidated revenue totaled HKD404.2 billion for the last twelve months ended on 30 June 2016.

The Local Market analyst for this rating is Kai Hu, +86 (21) 2057 4012.

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.

Joe Morrison
VP - Senior Credit Officer
Corporate Finance 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

Gary Lau
MD - Corporate Finance
Corporate Finance 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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