Fitch Rates China Huarong's USD Perpetuals 'A-(EXP)'
The securities will be unconditionally and irrevocably guaranteed by China Huarong International Holdings Limited (Huarong International), a wholly owned subsidiary of China Huarong Asset Management (China Huarong; A/Stable), and will have the benefit of a keepwell deed and a deed of equity interest purchase, investment and liquidity support undertaking given by China Huarong.
The final rating is contingent upon the receipt of final documents conforming to information already received.
KEY RATING DRIVERS
The proposed perpetual securities are credit-linked and notched down once from the 'A' Issuer Default Rating of Huarong International's ultimate parent, China Huarong. Although the notes are unsubordinated, the one-notch difference reflects that, in a stress scenario, China Huarong may decide to prioritise senior unsecured debt when extraordinary support is needed.
The securities will be direct, unsubordinated and unconditional obligations of Huarong Finance II and Huarong International, despite their perpetual nature, and rank pari passu with other unsecured unsubordinated obligations. Fitch deems the securities' effective maturity as finite and linked to the step-up of the coupon on the first-call date. Dividend and coupon stoppers from all three entities have reduced the opportunity for optional coupon deferral.
Fitch believes the keepwell and liquidity support deed and the deed of equity interest purchase undertaking signal a strong intention from China Huarong to ensure Huarong International has sufficient funds to honour its debt obligations. The agency also believes China Huarong intends to maintain its reputation and credit profile in the international offshore market and is unlikely to default on offshore obligations. In addition, a default by Huarong International could have significant negative repercussions on China Huarong for any future offshore funding.
Fitch does not expect to accord equity credit to the proposed securities in its evaluation of China Huarong's capital structure and leverage, as the instrument ranks pari passu with China Huarong's senior unsecured obligations.
China Huarong is credit-linked to the Chinese sovereign (A+/Stable) and rated one notch below the sovereign, reflecting the company's state-ownership and strong control by the authorities. China Huarong's strategic ties with the state mean there is a strong likelihood the company would receive extraordinary support from the sovereign, if needed.
China Huarong is one of four large national asset management companies established to mitigate financial risks, preserve state-owned assets and promote the reform and development of China's financial system.
VARIATION FROM PUBLISHED CRITERIA
The analysis supporting the 'A-(EXP)' rating on the proposed perpetual securities includes a variation from the Rating of Public-Sector Entities - Outside the United States criteria. Fitch used its corporate criteria, Treatment and Notching of Hybrids in Non-Financial Corporate and REIT Credit Analysis, to conclude that the terms of Huarong Finance II's proposed perpetual securities would be considered 100% debt like.
RATING SENSITIVITIES
The rating of the proposed perpetual securities will mirror any change in China Huarong's Issuer Default Rating.
Positive or negative rating action could result from similar action on the sovereign. Stronger explicit support could lead to ratings being aligned with the sovereign. Any significant dilution of China Huarong's core activities in the acquisition and management of non-performing assets could lead to wider notching.
Significant changes to China Huarong's strategic importance or a dilution of the state's shareholding in the entity, resulting in a loss of control, could also result in a widening of the notching down from the sponsor's rating, or a change in the current approach applied, resulting in China Huarong no longer being classified as a credit-linked entity.
Комментарии