Hong Kong, September 14, 2020 -- Moody's Investors Service ("Moody's") has assigned
a Ba1(hyb) foreign-currency rating to the proposed USD-denominated
additional tier 1 (AT1) capital qualifying offshore preference shares
to be issued by Industrial & Commercial Bank of China Ltd (ICBC,
A1 stable).
The assigned ratings are subject to receipt of final documentations,
the terms and conditions of which are not expected to change in any material
way from the draft documents that Moody's has reviewed.
RATINGS RATIONALE
The Ba1(hyb) rating is three notches below ICBC's Adjusted Baseline Credit
Assessment (BCA), reflecting the structure of the proposed issuance
and Moody's assumption that investors of these securities face the risk
of full or partial compulsory conversion of the offshore preference shares
into ICBC's H shares common stock upon the occurrence of the relevant
trigger event.
The offshore preference shares rank junior to ICBC's deposits, other
senior obligations, all subordinated indebtedness, and any
obligations issued or guaranteed by ICBC that rank, or are expressed
to rank, senior to the offshore preference shares, and rank
senior only to its common stock.
Under the terms and conditions of the proposed offshore preference shares,
a compulsory conversion of the offshore preference shares into H shares
will be triggered if a non-viability trigger event occurs.
A non-viability trigger event will occur upon the earlier of (1)
the China Banking and Insurance Regulatory Commission having determined
that ICBC will not be able to exist if there is no conversion or write-off
of ICBC's capital; and (2) the relevant regulatory departments
having determined that ICBC will not be able to exist if the public sector
does not provide a capital injection or other equivalent support.
The rating also incorporates the possibility of impairment associated
with the cancellation of the dividends. Such an impairment could
occur before ICBC reaches the point of non-viability. Under
the proposed terms and conditions, the offshore preference shares
will pay fixed-rate annual dividends, which will be reset
periodically, and ICBC may choose not to pay dividends on a non-cumulative
basis. The distributions on the offshore preference shares are
fully discretionary, but in priority to any distributions made to
ordinary shareholders.
ICBC's standalone BCA is baa1 and its Adjusted BCA, which incorporates
no affiliate support, is the same as its BCA. China does
not have an operational resolution regime for banks. Therefore,
Moody's applies a basic Loss Given Failure approach in rating ICBC's debt
securities. While Moody's assesses that ICBC's deposits and
senior debt are likely to receive a very high level of support from the
Government of China (A1 stable) in times of need, Moody's does not
assume that AT1 securities - which are designed to absorb losses
- will receive extraordinary government support.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
ICBC's offshore preference shares could be upgraded if ICBC's
BCA is upgraded. ICBC's BCA could experience upward pressure
if ICBC's (1) asset quality, measured by the rate of formation of
problem loans, continues to improve; (2) profitability,
measured by return on assets, remains resilient; or (3) capitalization
continues to strengthen, with an improvement in its Tangible Common
Equity/Risk Weighted Assets (TCE/RWA).
ICBC's offshore preference shares could be downgraded if ICBC's
BCA is downgraded. ICBC's BCA could experience downward pressure
if ICBC's (1) asset quality and profitability weaken significantly;
or (2) capitalization weakens, with a deterioration in its TCE/RWA.
PRINCIPAL METHODOLOGY
The principal methodology used in this rating was Banks Methodology published
in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147865.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Industrial & Commercial Bank of China Ltd, headquartered in
Beijing, reported total assets of RMB33.1 trillion as of
30 June 2020. ICBC is a global systemically important bank as designated
by the G-20's Financial Stability Board.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security 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 rating has been disclosed to the rated entity or its designated agent(s)
and issued with no amendment resulting from that disclosure.
This rating is solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
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 entity is participating and the rated entity or its agent(s)
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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.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that issued the credit rating is available on www.moodys.com.
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.
Ray Heung
Senior Vice President
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, CFA
MD - Financial Institutions
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
