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Rating Action:

Moody's upgrades CITIC Group and CITIC Limited to A3; confirms CITIC Resources at Ba3

 The document has been translated in other languages

28 Aug 2014

Hong Kong, August 28, 2014 -- Moody's Investors Service has upgraded to A3 from Baa2 the senior unsecured bond rating of CITIC Group Corporation (CITIC Group).

Moody's has also upgraded the corporate family rating to issuer rating and senior unsecured bond ratings of CITIC Limited (formerly CITIC Pacific Limited) to A3 from Ba2, and the rating on its Medium Term Notes (MTN) to (P)A3 from (P)Ba2.

At the same time, Moody's has confirmed CITIC Resources Holdings Limited's (CITIC Resources) Ba3 corporate family rating.

The outlook on all the ratings is stable.

These rating actions conclude Moody's review for upgrade of CITIC Group, CITIC Limited (formerly CITIC Pacific) and CITIC Resources 's ratings, which was initiated on March 27, 2014, after CITIC Limited (formerly CITIC Pacific) announced the acquisition of 100% of the total issued shares of CITIC Limited (the acquired entity).

The transaction has been executed on terms and conditions in line with Moody's expectation. CITIC Limited (formerly CITIC Pacific) also issued 3,952 million shares to some new shareholders, raising net proceeds of approximately HKD53.274 billion. CITIC Pacific changed its name to CITIC Limited on August 27, 2014.

RATINGS RATIONALE

"The upgrade of CITIC Group reflects the strong support that the Chinese government (Aa3 stable) has demonstrated with regard to the acquisition and whole scale listing of CITIC Group in the overseas capital markets. In our view, CITIC Group is a pilot case for the Chinese government to promote the state-owned enterprise reform outlined in last year's Third Plenum Decisions," says Joe Morrison, a Moody's Vice President and Senior Analyst.

Moody's expects that CITIC Group will continue to be an important platform for the Chinese central government to manage a large volume of state-owned assets, including a few large financial institutions that are of systematic importance to China's financial system.

"The upgrade also reflects Moody's expectation that CITIC Group will enhance its standalone credit profile after the ongoing restructuring post-acquisition. The restructuring will enable CITIC Group to (1) broaden its access to low-cost funding channels; (2) improve its management, corporate governance, and information transparency; and (3) achieve synergies from onshore and offshore businesses consolidation," continues Morrison, also the International Lead Analyst for CITIC Group and CITIC Limited (formerly CITIC Pacific).

CITIC Group's A3 rating is underpinned by its baseline credit assessment (BCA) of ba1 as well as a four-notch uplift owing to the expected high level of government support under Moody's joint default analysis approach for government related issuers.

The BCA of ba1 is dominated by the credit profile of CITIC Bank, represented by its BCA of ba2. CITIC Bank accounted for around 68% of the group's net profit and 85% of its assets in 2013. CITIC Group's BCA is further enhanced by its broad lines of businesses, providing the group with diversification benefits, and its sound access to the capital and bank markets. CITIC Group's holding company also owns large stakes in listed companies, which could serve as an alternative liquidity sources in times of financial distress.

The expected high level of government support reflects (1) CITIC Group's role as an important platform for the Chinese government to manage sizable important state-owned assets; and (2) its close linkage with and high reputational risk for the central government.

"The upgrade of CITIC Limited's (formerly CITIC Pacific) ratings reflects the significant increase of its scale and corresponding enhancement of its credit profile. As a result of the acquisition, CITIC Limited (formerly CITIC Pacific) dominates CITIC Group's business and financial profile. It accounts for 97%, 88%, 98% of CITIC Group's assets, revenue, and profits respectively. As such, we consider that the two entities are closely linked and their ratings should be equalized," says Kai Hu, a Moody's Vice President and Senior Credit Officer, and also Moody's Local Market Analyst for CITIC Group and CITIC Limited (formerly CITIC Pacific).

CITIC Resources' rating remains unchanged, as CITIC Group currently has no concrete plan for the consolidation of its resources development-related entities upon completion of the transaction. As such, the impact of CITIC Limited's (formerly CITIC Pacific) acquisition on CITIC Resources remains uncertain at this stage.

The stable outlook on CITIC Group and CITIC Limited's (formerly CITIC Pacific) ratings reflects Moody's expectation that (1) the companies will smoothly implement and benefit from the restructuring ; (2) both entities will remain important to the Chinese government as a platform to manage sizable important state-owned assets; and (3) overall stable performance of their underlying businesses.

Given these rating upgrades, a further upgrade of CITIC Group and CITIC Limited's (formerly CITIC Pacific) ratings is unlikely over the next one to two years.

Over the medium term, an upgrade of CITIC Group and CITIC Limited's (formerly CITIC Pacific) ratings would require the companies to improve their businesses and financial profiles, as demonstrated by: (1) a sound track record of making new investments and asset recycling; (2) better transparency of the group's investment strategy and risk positions; (3) a proven ability to manage risks inherent to the large financial services units and commodity related businesses, against the backdrop of a slowdown in China's economic growth; and (4) enhanced liquidity at the holding company level.

The credit metrics that we will consider for an upgrade include: CITIC Group's adjusted consolidated debt capitalization below 35%-40%, and/or adjusted debt/EBITDA below 2.5x-3.0x on a sustained basis.

A rating downgrade is possible if CITIC Group and CITIC Limited (formerly CITIC Pacific) experience: (1) material deterioration in the quality of their businesses portfolios, particularly for the financial services units; or (2) overaggressive expansion at either the holding company or portfolio company level, resulting in much higher leverage or business risks.

The credit metrics that we would consider for a downgrade include: CITIC Group's adjusted consolidated debt capitalization above 55%-60%, and/or adjusted debt/EBITDA exceeding 5.0x-6.0x over a prolonged period.

Evidence of weakening support from or diminution in the group's strategic importance to the Chinese government will also pressure its ratings.

The principal methodology used in this rating was Global Independent Exploration and Production Industry published in December 2011. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

CITIC Group Corporation and CITIC Limited's (formerly CITIC Pacific) ratings were assigned by evaluating factors that Moody's considers relevant to the credit profile of the issuer, such as the company's (i) business risk and competitive position compared with others within the industry; (ii) capital structure and financial risk; (iii) projected performance over the near to intermediate term; and (iv) management's track record and tolerance for risk. Moody's compared these attributes against other issuers both within and outside CITIC Group Corporation and CITIC Limited's (formerly CITIC Pacific) core industry and believes CITIC Group Corporation and CITIC Limited's (formerly CITIC Pacific) ratings are comparable to those of other issuers with similar credit risk.

Other factors used in these ratings are described in Analytical Considerations in Assessing Conglomerates, published in September 2007.

CITIC Limited (formerly CITIC Pacific), listed in Hong Kong, is a conglomerate that is 78% owned by the CITIC Group Corporation. It became the intermediary holding company of CITIC Group after the completion of acquisition of CITIC Limited (the acquired entity). It has a highly diversified business portfolio, including commercial banking, brokerage, iron ore mining, steel, property, manufacturing, infrastructure, etc.

CITIC Resources Holdings Limited is an energy and natural resources investment holding company, with interests in aluminum smelting, coal, import and the export of commodities, manganese, bauxite mining and alumina refining operations, as well as the exploration, development and production of oil. The company serves as the principal natural resources and energy arm of its parent, CITIC Group.

While CITIC Group has the features of an investment holding company, we analyze it mainly as a conglomerate and apply the conglomerate rating approach as it has supported and will support its key subsidiaries, similar to other rated conglomerates in the region.

CITIC Group, headquartered in Beijing, is a conglomerate investment company wholly owned by China's State Council. As of end-2013, it had total consolidated assets of RMB4.3 trillion and consolidated revenue of RMB375 billion.

The Local Market Analyst for these ratings is Kai Hu, +86 (10) 6319 6560.

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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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
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
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

Moody's upgrades CITIC Group and CITIC Limited to A3; confirms CITIC Resources at Ba3
No Related Data.
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