November 21, 2017 / 2:25 AM / a year ago

Fitch Rates Far East Horizon's Subordinated Perpetuals 'BB(EXP)'

(The following statement was released by the rating agency) HONG KONG/TAIPEI, November 20 (Fitch) Fitch Ratings has assigned Far East Horizon Limited's (BBB-/Stable) proposed US dollar subordinated perpetual capital securities an expected 'BB(EXP)' rating. The securities will be issued by King Talent Management Limited, an SPV wholly owned by Far East Horizon, and will be irrevocably and unconditionally guaranteed by Far East Horizon. Far East Horizon plans to use the proceeds of the proposed securities for working capital and general corporate purposes. The final rating and equity credit assigned to the securities are contingent upon the receipt of final documents conforming to information already received. The securities constitute direct, unsecured and subordinated obligations of Far East Horizon, and will rank pari passu among themselves and junior to its senior securities. The securities have no maturity date and holders of the securities do not have the right to sell the securities back to the issuer. King Talent has full discretion to defer coupon payment and there are no limits to the number of times the coupon may be deferred. The securities will have look-back provisions starting from 2027 and the distribution rate will be reset from 2022. The securities also have a step-up provision which could start from 2037. Far East Horizon is the fifth-largest Chinese leasing company overall and is among the largest independent leasing companies in China by assets. KEY RATING DRIVERS The expected 'BB(EXP)' rating on Far East Horizon's subordinated perpetual capital securities is two notches below the company's Issuer Default Rating (IDR) of 'BBB-', reflecting the securities' coupon deferral (one notch) and deep subordination (one notch), which result in higher non-performance and lower recovery prospects in a liquidation or bankruptcy scenario relative to the senior obligations. Fitch expects to afford the securities 50% equity credit until 2022, when equity credit will reduce to 0% because it will be within five years of the look-back provisions starting from 2027. The instrument's rating will continue to be two notches below the IDR in line with its ongoing subordination and deferral features. This is in accordance with Fitch's 'Non-Financial Corporates Hybrids Treatment and Notching Criteria' for hybrids that have deep subordination, full discretion to defer coupons for at least five years, limited events of default and permanence. Discussion with Far East Horizon indicates the company is committed to maintaining the stability of the capital structure and it intends to keep the new hybrid security as a permanent part of the group's capital structure as the securities' documentation contains non-binding replacement language. For more details on Far East Horizon's ratings and credit profile, see <a href="">Fit ch Publishes Far East Horizon's 'BBB-' Rating, dated 21 March 2017. RATING SENSITIVITIES Any changes to the rating of the securities would be directly correlated to movements in Far East Horizon's IDR, which is based on its standalone profile. Any material change in Far East Horizon's liability structure that would lead Fitch to believe that the loss severity of the securities has increased could lead to wider notching. An upgrade to the IDR is not probable in the short term. However, a major improvement in Far East Horizon's funding profile, including securing a stable funding pool and extensive advancement in its market status, could result in a rating upgrade. The IDR may be downgraded if there is an opportunistic shift in Far East Horizon's business model towards greater risk-taking without a commensurate increase in risk buffers. China's operating environment is developing and is less stable, which could limit an improvement in the company's credit strength and potentially undermine its perceived funding strengths. Contact: Primary Analyst Katie Chen Director +886 2 8175 7614 Fitch Australia Pty Ltd, Taiwan Branch Suite 1306, 13F, 205, Tunhwa North. Rd. Taipei Secondary Analyst Leo Wah, CFA Director +852 2263 9951 Committee Chairperson Mark Young Senior Director + 44 203 530 1318 Date of Relevant Rating Committee: 15 November 2017 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 Non-Financial Corporates Hybrids Treatment and Notching Criteria (pub. 27 Apr 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here 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. 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