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Fitch Rates China Huarong's USD Perpetuals Final 'A-'
September 30, 2016 / 7:56 AM / a year ago

Fitch Rates China Huarong's USD Perpetuals Final 'A-'

(The following statement was released by the rating agency) HONG KONG, September 30 (Fitch) Fitch Ratings has assigned final ratings of 'A-' to Huarong Finance II Co. Ltd's USD500m of 2.875% unsubordinated guaranteed perpetual securities issued under its USD11bn medium-term note (MTN) programme. The proceeds will be used as working capital and for general corporate purposes. The securities will be unconditionally and irrevocably guaranteed by China Huarong International Holdings Limited (Huarong International), a wholly owned subsidiary of China Huarong Asset Management Co., Ltd. (China Huarong; A/Stable), and will have the benefit of a keepwell deed and a deed of equity interest purchase, investment and liquidity support undertaking given by China Huarong. The assignment of the final ratings follows the receipt of documents conforming to information already received. The final ratings are in line with the expected ratings assigned on 6 September 2016. KEY RATING DRIVERS The proposed perpetual securities are credit-linked and notched down once from the 'A' Issuer Default Rating of Huarong International's ultimate parent, China Huarong. Although the notes are unsubordinated, the one-notch difference reflects that, in a stress scenario, China Huarong may decide to prioritise senior unsecured debt when extraordinary support is needed. The securities will be direct, unsubordinated and unconditional obligations of Huarong Finance II and Huarong International, despite their perpetual nature, and rank pari passu with the entities' other unsecured unsubordinated obligations. Fitch deems the securities' effective maturity as finite and linked to the 500bp step-up of the coupon on the first-call date. Dividend and coupon stoppers from all three entities have reduced the opportunity for optional coupon deferral. Fitch believes the keepwell and liquidity support deed and the deed of equity interest purchase undertaking signal a strong intention from China Huarong to ensure Huarong International has sufficient funds to honour its debt obligations. The agency also believes China Huarong intends to maintain its reputation and credit profile in the international offshore market and is unlikely to default on offshore obligations. In addition, a default by Huarong International could have significant negative repercussions on China Huarong for any future offshore funding. Fitch does not accord equity credit to the securities in its evaluation of China Huarong's capital structure and leverage, as the instrument ranks pari passu with China Huarong's senior unsecured obligations. China Huarong is credit-linked to the Chinese sovereign (A+/Stable) and rated one notch below the sovereign, reflecting the company's state-ownership and strong control by the authorities. China Huarong's strategic ties with the state mean there is a strong likelihood the company would receive extraordinary support from the sovereign, if needed. China Huarong is one of four large national asset management companies established to mitigate financial risks, preserve state-owned assets and promote the reform and development of China's financial system. VARIATION FROM PUBLISHED CRITERIA The analysis supporting the 'A-' rating on the perpetual securities includes a variation from the "Rating of Public-Sector Entities - Outside the United States" criteria. Fitch used its corporate criteria, "Treatment and Notching of Hybrids in Non-Financial Corporate and REIT Credit Analysis", to conclude that the terms of Huarong Finance II's perpetual securities make it 100% debt-like. RATING SENSITIVITIES The rating on the perpetual securities will move in tandem with changes in China Huarong's Issuer Default Rating. Positive or negative rating action could result from similar action on the sovereign. Stronger explicit support could lead to ratings being aligned with the sovereign. Any significant dilution of China Huarong's core activities in the acquisition and management of non-performing assets could lead to wider notching. Significant changes to China Huarong's strategic importance or a dilution of the state's shareholding in the entity, resulting in a loss of control, could also result in a widening of the notching down from the sponsor's rating, or a change in the current approach applied, resulting in China Huarong no longer being classified as a credit-linked entity. Contact: Primary Analyst Lin Pei Associate Director +852 2263 9912 19/F Man Yee Building 68 Des Voeux Road Central Hong Kong Secondary Analyst Terry Gao Director +852 2263 9972 Committee Chairperson Guido Bach Senior Director +49 69 7680 76111 Date of Relevant Rating Committee: 2 September 2016 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria International Local and Regional Governments Rating Criteria - Outside the United States (pub. 18 Apr 2016) here Rating of Public-Sector Entities - Outside the United States (pub. 22 Feb 2016) here Additional Disclosures Solicitation Status here Endorsement Policy here ail=31 ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2016 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. 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Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. 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