OREANDA-NEWS. Fitch Ratings has affirmed Beijing State-Owned Assets Management Co., Ltd.'s (BSAM) Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'A'. The Outlook is Stable. Fitch has also affirmed the 'A' ratings on BSAM's senior unsecured debt, and on Beijing State-Owned Assets Management (Hong Kong) Company Limited's (BSAMHK) USD300m 3% senior unsecured notes due 2020 and USD700m 4.125% senior unsecured notes due 2025.

The notes were issued by BSAMHK, a wholly owned subsidiary of BSAM. In place of a guarantee, BSAM has granted a keepwell and liquidity support deed and a deed of equity interest purchase undertaking to ensure BSAMHK has sufficient assets and liquidity to meet its obligations under the guarantee for the US dollar bond, which is BSAM's first issuance of offshore debt.

The notes are affirmed at the same level as BSAM's IDR, given 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.

In Fitch's opinion, both the keepwell and liquidity support deed and the deed of equity interest purchase undertaking signal a strong intention from BSAM to ensure that 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 the Beijing municipality. This is reflected in BSAM's 100% government ownership, strong municipal oversight on 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 Ratings' criteria.

Beijing's Strong Creditworthiness: The municipality 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 related debts, contingent liabilities from its public-sector entities and relatively weak transparency.

Legal Status Attribute Mid-Range: BSAM is wholly owned, managed and supervised by Beijing municipal government through Beijing State-Owned Assets Supervision and Administration Commission. The group is registered as a wholly state-owned limited liability and the government does not plan to dilute its shareholding in BSAM.

Strategic Importance: BSAM is the Beijing municipal government's key investment holding platform that it uses to manage a diversified portfolio entities with social and economic purposes, including health, technology, property development, finance, manufacturing, environmental protection, sports, culture and tourism. BSAM holds stakes in key Beijing financial institutions on the government's behalf. The lack of full flexibility in managing these investments demonstrates the close linkage between BSAM and the Beijing municipal government. Fitch assesses BSAM's strategic importance attribute as Stronger.

Balancing Policy and Commercial Objectives: One of BSAM's core operations is incubating investments in new industries the Beijing government seeks to develop. BSAM exits these investments when they mature and recycles the capital into new projects to support Beijing's economic development. BSAM makes these investments in close consultation with the municipal government to determine their commercial viability.

Public Service Orientation: The municipal government delegated BSAM to achieve policy goals and run key public projects, including building the facilities for the 2008 Beijing Olympics, hosting meetings for the 2014 Asia-Pacific Economic Cooperation, the Beijing Equity Exchange and the Beijing SME Credit Re-guarantee Co., Ltd. Furthermore, as an asset-management company of Beijing municipal government, BSAM has been used to restructure municipality-owned enterprises facing financial difficulties.

Solid Record of Support: BSAM received CNY12.9bn in investments from the Beijing municipality between 2002 and 2015, amounting to approximately 45% of BSAM's total equity at end-2015. Fitch believes government support for BSAM will continue, as it is used to develop new but important social functions, demonstrating its importance as a policy tool. Future government support is also implied by the long-lasting preferential tax policy towards BSAM. Fitch considers BSAM's integration into the municipal government's budget as Stronger.

Tight Control and Supervision: The group's board members are appointed by the Beijing municipality and its. The group's financing plan and indebtedness level are also closely monitored by the municipality. BSAM is also required to regularly report its operational and financial results to the government. The control attribute is assessed at Stronger.

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 a 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