May 14, 2015 / 11:28 AM / 3 years ago

Fitch Rates CCB's Second Offshore Basel III Tier 2 Bonds Final 'BBB+'

(The following statement was released by the rating agency) HONG KONG, May 14 (Fitch) Fitch Ratings has assigned China Construction Bank's (CCB; A/Stable) second offshore Basel III-compliant Tier 2 subordinated bonds a final rating of 'BBB+'. The assignment of the final rating follows the completion of the bond issuance and receipt of documents conforming to the information previously received. Fitch assigned an expected rating of 'BBB+(EXP)' to the issue on 29 April 2015. The bonds are the bank's second offshore Basel III-compliant notes, following the first notes issued and rated 'BBB+' on 14 November 2014. The size of the issue is USD2bn with a coupon rate of 3.875%. The bonds have been listed on the Hong Kong Stock Exchange and will mature on 13 May 2025. They will qualify as Tier 2 capital of the bank. CCB has options to redeem the bonds in full on 13 May 2020 and at any time upon obtaining consent of the China Banking Regulatory Commission (CBRC) - if there is a change in the CBRC's capital regulations having the effect that the bonds will no longer qualify as Tier 2 capital of the bank. KEY RATING DRIVERS Fitch rates the bonds two notches below CCB's Issuer Default Rating of 'A' to reflect their high loss severity relative to senior unsecured instruments given their subordination and full write-off feature. The bonds include a non-viability trigger for capital recognition under China's Capital Rules for Commercial Banks. If a non-viability event occurs, the principal amount and any accrued but unpaid interest of the bonds will be written off in full permanently. A non-viability event occurs when the CBRC decides a write-off is necessary or a relevant authority decides a public-sector injection of capital or equivalent support is necessary to maintain the bank's viability. Once the bonds have been written off, they will be permanently cancelled and cannot be restored or become payable again under any circumstances. For the purposes of rating these bonds, the IDR is considered the point that best reflects the risk of CCB triggering a non-viability event given its quasi-policy roles to support domestic growth and central government ownership. Fitch believes the authorities will pre-emptively intervene to shore up capital and liquidity to more sustainable levels - or take some other form of remedial action - should they consider that prolonged deterioration, if unaddressed, may eventually result in the bank becoming non-viable. Furthermore, interest payments on the notes may be omitted in the event that CCB has a lack of available resources, which Fitch believes the relevant authorities would determine as being the point at which CCB is deemed no longer viable. Since there are no other going-concern loss absorption features, Fitch believes the risk of non-performance on the bonds is adequately reflected in the anchor rating with no additional incremental notching required. Under Fitch's methodology the instrument does not qualify for any equity credit. RATING SENSITIVITIES Any changes to the rating on CCB's Basel III-compliant Tier 2 bonds will be directly correlated to changes in CCB's IDR. In addition, CCB's IDR is sensitive to any shift in the Chinese government's propensity or ability to support CCB in a timely manner. The other ratings of CCB are unaffected by this action, and are as follows: - Long-Term Foreign-Currency IDR at 'A'; Stable Outlook - Short-Term Foreign-Currency IDR at 'F1' - Long-Term Local-Currency IDR at 'A'; Stable Outlook - Short-Term Local-Currency IDR at 'F1' - Support Rating at '1' - Support Rating Floor at 'A' - Viability Rating at 'bb' Contact: Primary Analyst Grace Wu Senior Director +852 2263 9919 Fitch (Hong Kong) Limited 2801, Tower Two, Lippo Centre 89 Queensway, Hong Kong Secondary Analyst Katie Chen Associate Director +86 1085172135 Committee Chairperson James Watson Managing Director +7 495 956 9901 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: Date of Relevant Rating Committee: 29 October 2014 Additional information is available on Applicable criteria, "Global Bank Rating Criteria", dated 20 March 2015 are available at Applicable Criteria and Related Research: Global Bank Rating Criteria here Additional Disclosure Solicitation Status 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 WEBSITE '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.

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