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Fitch Affirms Beijing State-Owned Assets Management at 'A'; Outlook Stable
June 16, 2017 / 7:26 AM / 6 months ago

Fitch Affirms Beijing State-Owned Assets Management at 'A'; Outlook Stable

(The following statement was released by the rating agency) HONG KONG, June 16 (Fitch) Fitch Ratings has affirmed Beijing State-Owned Assets Management Co., Ltd.'s (BSAM) Long-Term Foreign-Currency Issuer Default Rating (IDR) and the rating on its senior unsecured debt at 'A'. The Outlook on the IDR is Stable. The agency has also affirmed the 'A' rating on the USD300 million 3% senior unsecured notes due 2020 and USD700 million 4.125% senior unsecured notes due 2025 issued by Beijing State-owned Assets Management (Hong Kong) Company Limited (BSAMHK), BSAM's wholly owned subsidiary. In place of a guarantee, BSAM has granted a keepwell and liquidity support deed and a deed of equity interest purchase undertaking on the US dollar notes to ensure BSAMHK has sufficient assets and liquidity to meet its obligations under the guarantee. The notes were BSAM's first issuance of offshore debt and are affirmed at the same level as BSAM's IDR due to the strong linkage between BSAMHK and BSAM and because the keepwell and liquidity support deed and deed of equity interest purchase undertaking transfer the ultimate responsibility of payment to BSAM. Fitch believes both the keepwell and liquidity support deed and the deed of equity interest purchase undertaking signal a strong intention from BSAM to ensure BSAMHK has sufficient funds to honour the debt obligations. The agency also believes BSAM intends to maintain its reputation and credit profile in the international offshore market and is unlikely to default on offshore obligations. Additionally, a default by BSAMHK could have significant negative repercussions on BSAM for any further offshore funding. KEY RATING DRIVERS Links to Beijing Municipality: BSAM's ratings are credit-linked to, but not equalised with, Beijing municipality. This is reflected in BSAM's 100% government ownership, strong municipal oversight of its financials and strategic importance of the entity's operation to the municipality. These factors result in a strong likelihood of extraordinary support, if needed. BSAM is classified as a credit-linked public-sector entity under Fitch's criteria. Beijing's Strong Creditworthiness: The capital city has a robust budgetary performance, a strong and well-diversified socio-economic profile and a close relationship with the China sovereign (A+/Stable), owing to its status as the capital. These strengths are mitigated by its moderately high municipal debt, contingent liabilities arising from its public-sector entities and weak transparency. Legal Status Attribute Mid-Range: BSAM is wholly owned, managed and supervised by the Beijing municipal government through the Beijing State-Owned Assets Supervision and Administration Commission. The group is registered as a wholly state-owned limited liability company and the government does not plan to dilute its shareholding in BSAM. Strategic Importance - Stronger: BSAM is a key investment holding platform of the Beijing municipal government to manage a diversified portfolio, which includes health care, technology, property development, finance, manufacturing, environmental protection, sports, culture and tourism, with both social and economic purposes. BSAM holds stakes in key Beijing financial institutions on the government's behalf. The lack of full flexibility in managing these investments also demonstrates the close linkage between BSAM and the Beijing municipal government. Balancing Policy and Commercial Objectives: One of BSAM's core operations is to incubate investments in new industries that the Beijing government seeks to develop. BSAM will exit the investments when they mature and recycle the capital into new projects that support Beijing's economic development. BSAM makes these investments in close consultation with the municipal government to determine their commercial viability. Moderate Business Concentration Risk: BSAM may face geographic concentration risk as a majority of its investments are based in Beijing. However, Fitch sees the risk to be moderate due to BSAM's increasing national presence via multiple investments in the previous few years, such as Dynagreen's renewable energy plant in Shenzhen. Business concentration risk is limited due to the diversified portfolio across multiple industries. Integration - Mid-Range: BSAM has received large government asset injections, including a national stadium and other state-owned assets. Total government support from the Beijing municipality amounted to around CNY12.9 billion between 2002 and 2015. BSAM also receives around CNY200-300 million per year in subsidies. Control and Oversight - Stronger: The group's board members are ultimately appointed by, or report to, the government. The group's financing plan and indebtedness are also closely monitored by the municipality via periodical financial reports. Satisfactory Financial Status: BSAM's assets largely consist of long-term equity investments, inventory and cash. Fitch expects to see further growth in BSAM's consolidated total assets following capex expansion. BSAM's parent-level total assets amount to around CNY48 billion and its parent-level total debt is CNY10.4 billion. RATING SENSITIVITIES An upgrade of Fitch's credit assessment on the Beijing municipality as well as a stronger or more explicit support commitment by the municipality may trigger positive rating action on BSAM. Significant weakening of BSAM's strategic importance to the municipality, dilution of the municipality's shareholding or reduced explicit and implicit municipality support may result in a downgrade. A downgrade could also stem from weaker fiscal performance or increased indebtedness of the municipality, leading to deterioration in the sponsor's creditworthiness. Contact: Primary Analyst Lorraine Liu Analyst +852 2263 9929 Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road Central, Hong Kong Secondary Analyst Terry Gao Senior Director +852 2263 9972 Committee Chairperson Raffaele Carnevale Senior Director +39 02 87 90 87 203 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: Additional information is available on 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 Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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