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Rating Action:

Moody's upgrades BoCom Leasing and BLDHK's ratings; outlook stable

 The document has been translated in other languages

30 May 2018

Hong Kong, May 30, 2018 -- Moody's Investors Service has upgraded Bank of Communications Financial Leasing Co., Ltd.'s (BoCom Leasing) long-term/short-term issuer ratings to A2/P-1 from A3/P-2. The outlook is stable.

Moody's has also upgraded Bocom Leasing Development Hong Kong Company Limited's (BLDHK) long-term issuer rating to A3 from Baa1. The outlook is stable.

At the same time, Moody's has upgraded Azure Nova International Finance Limited's (Azure Nova) backed senior unsecured medium term note (MTN) program rating to (P)A2 from (P)A3 and its backed senior unsecured note ratings to A2 from A3.

Moody's has also decided to withdraw the outlooks on BoCom Leasing and its subsidiaries' issuer ratings and instrument ratings for business reasons.

The full list of affected ratings is listed at the end of this press release.

RATINGS RATIONALE

Moody's rating action follows the rating action taken on BoCom Leasing's parent, Bank of Communications Co., Ltd. (BoCom, A2 stable, Baseline Credit Assessment: baa3). On 30 May 2018, Moody's upgraded BoCom's long-term/short-term deposit ratings to A2/P-1 from A3/P-2. The outlook on the ratings is stable. For full details on the rating action on BoCom, please refer to the press release:

https://www.moodys.com/research/Moodys-take-rating-actions-on-19-Chinese-commercial-banks-and--PR_384254

BoCom Leasing

BoCom Leasing's A2 long-term issuer rating incorporates the company's standalone credit profile of ba3 and a seven-notch uplift based on affiliate-backed support from BoCom. Moody's believes that BoCom will provide full support to BoCom Leasing in times of stress. Therefore, the upgrade of the parent's ratings has led to a similar rating action on BoCom Leasing.

BoCom Leasing's ratings are equalized with those of its ultimate parent BoCom, reflecting (1) the strategic importance of BoCom Leasing to BoCom, (2) the presence of a regulatory framework requiring liquidity and capital support from the parent, and (3) BoCom's strong willingness and ability to support BoCom Leasing's business and financial profiles in the form of business referrals, risk management systems, information platforms, capital injections and funding access.

BoCom Leasing holds strategically important roles in facilitating the businesses of BoCom, and its operation is closely integrated with the parent. A failure by the parent to support BoCom Leasing would result in significant business, operational and reputational risks for the parent.

Moody's also believes that BoCom's explicit liquidity and capital commitments in BoCom Leasing's articles of association further strengthen BoCom's commitment to provide support to its subsidiary. This is reinforced by the China Banking and Insurance Regulatory Commission's requirement that the parent bank commit to provide liquidity support and to inject capital to offset losses.

Over the past few years, BoCom has made sequential capital injections into BoCom Leasing. It has also increased available credit facilities to support the leasing company's business and asset growth. Hence, Moody's believes that the parent bank has strong willingness and ability to provide support to BoCom Leasing on a timely or pre-emptive basis, thus making any payment interruptions unlikely.

The standalone credit profile of ba3 takes into account BoCom Leasing's (1) franchise in China's growing leasing industry, (2) relatively diversified business and geographic segments, and (3) good profitability, but is constrained by high reliance on short-term confidence-sensitive wholesale funding and increasing overdue and impaired loans.

BLDHK

The upgrade of BLDHK's issuer rating to A3 from Baa1 follows the upgrade of BoCom Leasing's issuer rating. BLDHK's A3 issuer rating primarily reflects affiliate-backed support from its parent, BoCom Leasing, and ultimate parent, BoCom, given (1) BLDHK's integral role and strategic importance to the group's offshore leasing business as a financing and treasury platform, (2) BoCom's liquidity and capital commitments to BoCom Leasing, and (3) a keepwell agreement provided by BoCom Leasing, while the company has a relatively short history and weak standalone credit profile of b2.

The one-notch differential between the A2 issuer rating of BoCom Leasing and the A3 issuer rating of BLDHK reflects (1) the absence of a direct guarantee from BoCom Leasing, and (2) the potential risks associated with obtaining approval to remit funds, given China's capital regulations.

Azure Nova

Azure Nova, incorporated in the Cayman Islands, is indirectly wholly owned by BoCom Leasing.

The upgrade of Azure Nova's MTN program to (P)A2 from (P)A3 and the senior unsecured ratings to A2 from A3 also reflect the upgrade of BoCom Leasing's issuer rating. The ratings are in line with the A2 long-term issuer rating of BoCom Leasing, taking into account an unconditional and irrevocable guarantee from BoCom Leasing. The guarantee represents an unsubordinated and unsecured obligation of BoCom Leasing, which ranks pari passu with BoCom Leasing's existing and future unsecured and unsubordinated obligations.

BOCOM LEASING: WHAT COULD MOVE THE RATINGS UP/DOWN

The ratings of BoCom Leasing are aligned with the ratings of its parent. Hence, any rating actions on the parent would therefore likely result in rating actions on the company.

BoCom Leasing's standalone credit profile could be raised if the company maintains good asset quality, increases its 24-month coverage ratio to above 85%, lowers its borrower concentration risk, and strengthens its tangible common equity-to-tangible managed assets ratio to above 12%.

The ratings of BoCom Leasing could also be downgraded if Moody's observes (1) a weakening in liquidity and capital support from the parent, (2) a decline in the business relationship with and management control of the parent bank, or (3) a significant shareholding reduction by the parent bank to less than 50.1% ownership in the company.

BoCom Leasing's standalone credit profile could be lowered if (1) its liquidity and funding profiles weaken, (2) its asset quality deteriorates, or (3) rapid business growth triggers a rise in its leverage and a decline in its capital level.

BLDHK: WHAT COULD MOVE THE RATINGS UP/DOWN

An upgrade of BoCom Leasing's issuer rating, or the provision of a direct guarantee, could trigger upgrade of BLDHK's issuer rating.

BLDHK's standalone credit profile could be raised if the company improves its profitability and capital adequacy. However, a strengthening in its standalone credit profile will not necessarily translate into an upgrade, since the issuer rating already benefits from multiple notches of support.

The ratings of BLDHK could be downgraded if: (1) BoCom Leasing's issuer rating is downgraded, (2) BoCom Leasing's ability and willingness to support BLDHK weaken, or (3) there is a material adverse change in capital account regulations, which limits BoCom Leasing's ability to provide timely cross-border support to BLDHK to meet payment obligations.

AZURE NOVA: WHAT COULD MOVE THE RATINGS UP/DOWN

The notes issued by Azure Nova under the MTN program are unconditionally and irrevocably guaranteed by BoCom Leasing. The factors that can cause BoCom Leasing's ratings to be upgraded and downgraded will also drive Azure Nova's MTN program and note ratings.

The principal methodology used in these ratings was Finance Companies published in December 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Bank of Communications Financial Leasing Co., Ltd. is headquartered in Shanghai. It reported assets of RMB207 billion at the end of 2017.

Bocom Leasing Development HK Co. Ltd., established in Hong Kong, is Bank of Communications Financial Leasing's offshore treasury center.

LIST OF AFFECTED RATINGS

..Issuer: Bank of Communications Financial Leasing Co., Ltd.

.... Local currency and foreign currency long term issuer rating upgraded to A2 from A3, withdrawing the stable outlook

.... Local currency and foreign currency short term issuer rating upgraded to P-1 from P-2

. Outlook maintained at stable

..Issuer: Bocom Leasing Development HK Co. Ltd.

.... Local currency and foreign currency long term issuer rating upgraded to A3 from Baa1, withdrawing the stable outlook

.... Local currency and foreign currency short term issuer rating affirmed at P-2

. Outlook maintained at stable

..Issuer: Azure Nova International Finance Limited

.... BACKED senior unsecured foreign currency note rating upgraded to A2 from A3, withdrawing the stable outlook

.... BACKED senior unsecured foreign currency MTN program rating upgraded to (P)A2 from (P)A3

. Outlook maintained at stable

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.

Sean Hung
Vice President – Senior Analyst
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
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.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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