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RPT-Fitch Rates UBS SDIC RuiYi MMF 'AAAmmf(chn)'
June 17, 2014 / 1:02 PM / 3 years ago

RPT-Fitch Rates UBS SDIC RuiYi MMF 'AAAmmf(chn)'

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June 17 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has assigned UBS SDIC RuiYi Money Market Fund a ‘AAAmmf(chn)’ National Money Market Fund Rating. Launched in March 2014, the fund is domiciled in China and managed by UBS SDIC Fund Management Co., Ltd (UBS SDIC).

KEY RATING DRIVERS

The main drivers for the rating are:

-- The portfolio’s overall credit quality and diversification

-- Short maturity profile with minimal exposure to interest rate and spread risks

-- Strong overnight and one-week liquidity profiles

-- The capabilities and resources of UBS SDIC as investment manager

The ‘AAAmmf(chn)’ National Money Market Fund Rating reflects the fund’s strong capacity to achieve the investment objectives of preserving principal and providing shareholder liquidity through limiting credit, market and liquidity risk, relative to all other short-term investments in China.

PORTFOLIO CREDIT QUALITY/DIVERSIFICATION

In line with Fitch’s ‘National Scale Money Market Fund Rating Criteria’ and ‘AAAmmf(chn)'-rated money market funds, the fund seeks to maintain a high credit quality by investing exclusively in securities/counterparties with a minimum international foreign currency rating of ‘A-', or of comparable credit quality rated by other global credit rating agencies. The fund also controls concentration risk by setting limits on its exposures to individual issuers and counterparties.

Almost all the portfolio is directly or indirectly exposed to the Chinese sovereign’s credit risk. The fund investment universe comprises exchange-traded or interbank repurchase agreements, and Chinese sovereign bonds and policy bank bonds with maturities of up to two years. It may also invest in negotiated callable time deposits with large state-owned commercial banks. To assess the portfolio’s liquidity and average maturities, Fitch considers the final maturity of such deposits as opposed to their call date. The fund typically avoids investments in corporate commercial papers.

As of early-June 2014, most of the fund’s assets were exchange-traded repos, which typically have a maturity of seven days or less and are collateralised according to the standards set by the stock exchange. Fitch views such repos as Chinese sovereign risk. The fund’s cash is held at the custodian bank, Bank of China (A/Stable/F1).

MATURITY PROFILES

The fund’s maturity profile is maintained in line with Fitch’s ‘AAAmmf’ national scale money market fund rating criteria. At early-June, the fund’s weighted average maturity and weighted average life stood well within Fitch’s guidelines. The fund also limits the maturity date of any single investment to 397 days other than policy bank floating-rate notes (FRNs) which may have maturities of up to 24 months.

LIQUIDITY PROFILES

The fund’s investment restrictions are aimed at maintaining strong levels of daily and weekly liquidity to meet investors’ redemption requests, in line with Fitch’s rating criteria. The liquidity profile of the fund is conservatively managed, in line with its investor concentration. All of the fund’s assets were maturing within seven days as of early-June 2014. Longer maturities will likely be introduced as the fund’s investor gets more diversified.

FUNDS’ OBJECTIVES

The objective of the UBS SDIC RuiYi Money Market Fund is to provide capital stability, liquidity and income through investment in a portfolio of high credit quality money market instruments and short-term bonds. The fund is benchmarked against the seven-day net deposit rate.

INVESTMENT MANAGERS

UBS SDIC is a Sino-foreign joint venture asset management company, incorporated in June 2005. SDIC Trust and Investment Co. Ltd, a Chinese state-owned enterprise, owns 51% and UBS AG the remaining 49%. UBS SDIC is regulated by the China Securities Regulatory Commission (CSRC).

Fitch views UBS SDIC’s investment management capabilities, operational controls, financial and resource commitments and compliance procedures as consistent with a ‘AAAmmf(chn)’ National Money Market Fund rating.

RATING SENSITIVITIES

The rating may be sensitive to material changes in the credit quality or market risk profile of the fund. A material adverse deviation from Fitch guidelines for any key rating driver could cause Fitch to downgrade the rating. Volatile interbank market conditions and tight liquidity as experienced during June and October 2013 may represent challenges even for the conservative profile of UBS SDIC RuiYi Money Market Fund relative to the broader MMF universe in China, particularly when accompanied by redemption pressure.

A downgrade of the sovereign’s international Long-Term Issuer Default Rating may not necessarily result in a downgrade of the fund’s National Money Market Fund Rating as it could continue to represent the lowest credit, market and liquidity risk available in China, in line with Fitch’s national scale rating approach.

SURVEILLANCE

To maintain the fund’s rating, Fitch will seek weekly fund and portfolio holdings information sent through an independent source at UBS SDIC and will conduct surveillance checks against its ratings guidelines.

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