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