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Rating Action:

Moody's downgrades Hong Kong Mortgage Corporation's senior unsecured and issuer ratings to Aa3; outlook revised to stable

21 Jan 2020

Hong Kong, January 21, 2020 -- Moody's Investors Service ("Moody's") has downgraded The Hong Kong Mortgage Corporation Ltd.'s (HKMC) long-term senior unsecured and issuer ratings to Aa3 from Aa2 and long-term senior unsecured MTN program ratings to (P)Aa3 from (P)Aa2, and affirmed the company's short-term issuer ratings at P-1, other short-term ratings at (P)P-1, and baseline credit assessment (BCA) at a2.

Moody's has revised the outlook on HKMC to stable from negative.

RATINGS RATIONALE

The rating action on HKMC follows Moody's recent announcement to downgrade the Hong Kong government's issuer rating to Aa3 from Aa2. See Moody's press release https://www.moodys.com/research/Moodys-downgrades-Hong-Kongs-rating-to-Aa3-changes-outlook-to--PR_415515 published on January 20, 2020 for details.

HKMC's senior unsecured and issuer ratings take into account its BCA of a2, and a very high level of support from the government, considering its full government ownership through the Exchange Fund and its public policy mandates. Moody's also considers HKMC to have a high level of dependence with the Government of Hong Kong, given its exposure to the housing market and its very high financial and operational linkages with the government.

HKMC's long-term ratings are at the same level as the Hong Kong government's issuer ratings given the former's government ownership and public policy mandates, representation of government officials and legislators on its board of directors, and ongoing and expected extraordinary government support during times of stress. As such, the downgrade in the government's issuer rating to Aa3 from Aa2 led to a corresponding downgrade in HKMC's long-term senior unsecured and issuer ratings.

HKMC carries out four main public policy mandates through its operations: enhancing financial and banking stability in Hong Kong, promoting home ownership, facilitating the development of the local debt capital markets, and developing retirement planning market in Hong Kong.

WHAT COULD CHANGE THE RATINGS UP/DOWN

HKMC's ratings could be upgraded if the Hong Kong government's rating is upgraded.

The company's BCA is high, taking into account its geographic concentration and risks associated with its newly developed businesses, and is unlikely to be adjusted higher.

HKMC's ratings could be downgraded if the Hong Kong government's rating is downgraded.

The company's BCA could be lowered if: (1) its annuities business weighs significantly on the profitability and capitalization of the company; (2) unexpected losses on its mortgages, mortgage insurance book and annuities business erode a significant portion of its capital; (3) the credit facility from the Exchange Fund is withdrawn; (4) the company is instructed to carry out policy functions that weaken its financial profile; and (5) there is a decline in the company's capital adequacy ratio below 14% or an increase in its impaired loans to 1.5% of its total loans.

PRINCIPAL METHODOLOGY

The methodologies used in these ratings were Finance Companies Methodology published in November 2019, and Government-Related Issuers published in June 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

The Hong Kong Mortgage Corporation Ltd., headquartered in Hong Kong, reported total assets of HKD66.0 billion at end-June 2019.

REGULATORY DISCLOSURES

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.

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) generally provides 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.

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.

Sonny Hsu, CFA
VP - Senior Credit Officer
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
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

No Related Data.
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