Hong Kong, June 04, 2018 -- Moody's Investors Service, has changed to stable from negative
the outlook on CITIC Group Corporation's (CITIC Group) and CITIC
Limited's A3 issuer rating. At the same time, Moody's
has affirmed CITIC Group Corporation's (CITIC Group) and CITIC Limited's
A3 issuer rating, as well as on the A3 senior unsecured ratings
on CITIC Limited's bonds and CITIC Group's Japanese yen bonds,
and the (P)A3 rating on CITIC Limited's Medium Term Notes (MTN)
program.
RATINGS RATIONALE
"The change of outlook to stable reflects the expected improvement
in the credit profile of CITIC Group's non-financial service
businesses, such as resource and energy, manufacturing,
engineering and contracting, and real estate. " says
Gloria Tsuen, a Moody's Vice President and Senior Analyst,
and also the International Lead Analyst for CITIC Limited.
Such improvement is driven by: (1) the restructuring of CITIC Group's
businesses, such as the spin-off of its property portfolio
and the disposals of other assets; (2) improvement in operating performance,
which has benefited from the recovery of the market, especially
for cyclical businesses, such as oil & gas and steel,
and (3) the diversification into less cyclical businesses, such
as fast food restaurant chains, environmental service and modern
agriculture.
The change of outlook also reflects our expectation that CITIC Limited's
adjusted debt/EBITDA will trend below 6.0x in the next 1-2
years from around 6.3x in 2017 due to management's plan to
reduce leverage under the deleveraging initiative of state-owned
enterprises (SOEs), and our expectation of a moderate increase in
EBITDA from newly acquired businesses, and flat capex spending and
debt levels.
The stable outlook also recognizes the positive and rapid shift in China
CITIC Bank Corporation Limited's (CITICB, Baa2 positive) balance
sheet away from its reliance on market funding and shadow banking activities.
China CITIC Bank Corporation Limited is 65.97% owned by
CITIC Limited as of end 2017.
Nevertheless, the bank has a relatively modest capital position
and is seeing further pressure on capital as risk-weighted assets
rise more rapidly than assets.
While affirming CITICB's ratings for long-term deposits,
senior unsecured debt and the baseline credit assessment (BCA) on May
30, Moody's has revised the rating outlook to positive from stable
to reflect the bank's improving asset quality and liquidity.
CITIC Group's A3 rating incorporates a BCA of ba1 and four notches
of uplift from the Chinese government (A1 stable), based on our
assessment of a high support level.
CITIC Group's BCA is underpinned by the standalone credit strength of
CITIC Limited, which is equivalent to a Ba1 rating level.
The A3 rating of CITIC Limited incorporates four notches of parental uplift
from CITIC Group.
Since CITIC Limited accounts for over 90% of CITIC Group's total
assets, revenue, and profits, we consider the credit
profiles of the two entities and their ratings as closely linked.
CITIC Limited's standalone credit quality 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 strength are partially offset by its complex group structure
and its relatively high leverage.
Upward rating pressure could emerge if: (1) CITICB's fundamental
credit profile improves, and (2) the businesses profile and financial
leverage of CITIC Limited's non-bank businesses strengthens.
Credit metrics indicating upward rating pressure include CITIC Limited's
adjusted debt/EBITDA declining below 4.5x on a sustained basis.
Downward rating pressure could emerge if: (1) CITICB's credit
profile materially deteriorates, or (2) evidence of a weakened credit
profile for its non-bank businesses emerges, and (3) there
is a large rise in debt due to aggressive debt-funded acquisitions.
The credit metrics that Moody's would consider for a downgrade include
CITIC Limited's adjusted debt/EBITDA staying above 6.0x-6.5x
over a prolonged period.
A weakening of support from the Chinese government to CITIC Group and
CITIC Limited could also trigger negative rating pressure.
The methodologies used in these ratings were Buinsess anand Consumer Service
Industry published in October 2016, and Government-Related
Issuers published in August 2017. 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. It is wholly owned by China's
State Council. By the end of 2017, CITIC Group owned 58.13%
of CITIC Limited (A3 stable). 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 financial services, resources and energy,
manufacturing, engineering and contracting and real estate.
By the end of December 2017, its consolidated assets totaled HKD7.5
trillion, and its consolidated revenue totaled HKD450.5 billion
for the full year of 2017.
The Local Market analyst for these ratings 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.
Gloria Tsuen, CFA
Vice President - Senior Analyst
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
Client Service: 852 3551 3077
Gary Lau
MD - Corporate Finance
Corporate Finance 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
