Reuters logo
Fitch Affirms China-Based CICC at 'BBB+' with Stable Outlook
April 12, 2017 / 12:45 PM / 7 months ago

Fitch Affirms China-Based CICC at 'BBB+' with Stable Outlook

(The following statement was released by the rating agency) TAIPEI/HONG KONG, April 12 (Fitch) Fitch Ratings has affirmed the Long-Term Issuer Default Ratings (IDR) of China International Capital Corporation Limited (CICC) and China International Capital Corporation (Hong Kong) Limited (CICCHK) at 'BBB+' with a Stable Outlook and the entities' Short-Term IDRs at 'F2'. At the same time, the agency has affirmed the ratings of the notes issued by CICC Hong Kong Finance 2016 MTN Limited at 'BBB+'. CICC is one of China's larger investment banks, with leading positions in several equity and bond league tables. CICC's major shareholders include Central Huijin Investment Ltd. and related parties (58.7%), GIC Private Limited (6.9%), TPG Asia V Delaware, L.P. (4.3%), KKR Institutions Investments L.P. (4.2%) and China National Investment and Guaranty Corporation (3.2%). CICCHK is the sole offshore investment banking arm of CICC. It is wholly owned by CICC. CICC Hong Kong Finance is a wholly owned offshore special purpose vehicle established by CICCHK to launch the USD2 billion medium-term note (MTN) programme. A full list of rating actions is at the end of this commentary. KEY RATING DRIVERS IDRS on CICC and CICCHK CICC's ratings reflect Fitch's belief that extraordinary support from Central Huijin would be forthcoming, if needed. This is based on CICC's strategic role in supporting China's goal of establishing an internationally influential investment bank and its strong linkage with Central Huijin, a wholly owned subsidiary of China Investment Corporation (CIC). CIC is a sovereign wealth fund and the vehicle that holds controlling investment stakes in China's four largest banks on behalf of the government. In assigning the rating to CICC, Fitch has taken the Chinese sovereign (A+/Stable) as the ultimate source of extraordinary support to CICC and notched the rating three levels down. This recognises the investment bank's linkages to the Chinese sovereign but lower systemic importance against China's largest state-owned banks. Central Huijin is CICC's largest shareholder with a 58.7% stake. We estimate that CICC accounts for less than 1% of Central Huijin's total assets, but has a unique role in shepherding economic liberalisation, enhancing investment banking expertise and facilitating restructuring of state-owned enterprises. The company has leading market positions in underwriting, fixed-income business and advisory in large complex corporate restructurings, especially those involving cross-border placements. Central Huijin's strong propensity to support CICC is highlighted by its election to receive all new CICC shares from CICC's March 2017 acquisition of China Investment Securities Company Limited (CISC), which increased Central Huijin's CICC shareholding from 28.6%. The CISC acquisition enlarged CICC's balance sheet and strengthened its market position to China's 12th largest securities company, from the 22nd largest previously. The ratings on CICCHK are aligned with those of CICC, reflecting our assessment of an extremely high probability of support from CICC and its core shareholder, Central Huijin. CICCHK is CICC's sole offshore investment banking arm and thus assumes the important role of carrying out all cross-border investment banking businesses for CICC. This is integral to CICC's strategic focus in expanding its international franchise. In addition, it is wholly owned by CICC, highly integrated into the latter's operations and is a core subsidiary. CICCHK represented 29.1% of CICC's total assets as of end-2016 and accounted for 22.7% of CICC's total 2016 revenue. The Stable Outlook reflects our expectation that the extraordinary support expected to be offered to these entities by their parents will stay intact over the long term. Fitch considers CICC's standalone credit profile as among the best of Chinese securities firms, driven by its established risk management culture, restrained risk appetite and sound asset quality. Nonetheless, the rapid evolution of China's financial market weighs on its credit profile, as do the unpredictable regulatory interventions, both of which could result in sudden plunges in market liquidity and higher volatility. CICC had a sound and stable earnings performance, with a ROE of 10.7% in 2016, despite inclement market condition. CICC's strengths in investment banking and asset management, and the resultant revenue diversity, have helped contain the negative influence from the increasingly competitive brokerage market and the decline in market volume. CICC's revenue fell only modestly by 6% in 2016, while the industry suffered a sharp 43% contraction. SENIOR DEBT - CICC Hong Kong Finance The ratings on CICC Hong Kong Finance's MTN programme and the USD500 million senior notes issued under the programme reflect our assessment of an extremely high probability of support from CICCHK to CICC Hong Kong Finance. The notes are unconditionally and irrevocably guaranteed by CICCHK. The guaranteed notes constitute direct, unsubordinated, unconditional, and unsecured obligations of CICC Hong Kong Finance and rank pari passu with all of its other existing and future unsubordinated and unsecured obligations. RATING SENSITIVITIES IDRS on CICC and CICCHK A rating downgrade could result from a weakening in linkages between CICC and Central Huijin. This could include a significant dilution of Central Huijin's stake in CICC or if CICC's strategic importance to the Chinese government declines, which may be reflected in CIC reducing strategic involvement. CICC's ratings could be upgraded if Fitch believes it has become more systemically important to the Chinese government - although this possibility seems remote for CICC against the large state-owned banks - or if CICC undertakes a more visible strategic policy role. CICCHK's ratings would change in line with CICC's ratings and could be downgraded if CICC shows signs of a reduced willingness and ability to support the subsidiary. SENIOR DEBT - CICC Hong Kong Finance The MTN programme's ratings are directly correlated with notable changes in the willingness or ability of CICC to support the guarantor or issuer. The rating of the guaranteed senior notes will change in line with any movement in CICCHK's ratings. The rating actions are as follows: China International Capital Corporation Limited Long-term IDR affirmed at 'BBB+'; Outlook Stable Short-term IDR affirmed at 'F2' China International Capital Corporation (Hong Kong) Limited Long-term IDR affirmed at 'BBB+'; Outlook Stable Short-term IDR affirmed at 'F2' CICC Hong Kong Finance 2016 MTN Limited Senior unsecured USD2 billion MTN programme affirmed at 'BBB+' USD500 million 2.75% senior unsecured notes due 2019 affirmed at 'BBB+' Contact: Primary Analyst Jonathan Lee Senior Director +886 2 8175 7601 Fitch Australia Pty Ltd, Taiwan Branch Suite 1306, 13F, 205, Tun Hwa North Road, Taipei, Taiwan Secondary Analyst Leo Wah, CFA Director +852 2263 9951 Committee Chairperson Tim Roche Senior Director + 61 2 8256 0310 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: Additional information is available on Applicable Criteria Global Non-Bank Financial Institutions Rating Criteria (pub. 10 Mar 2017) 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. 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. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. 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 © 2017 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. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. 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. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below