OREANDA-NEWS. Fitch Ratings has affirmed China Cinda Asset Managemetn Co., Ltd.'s (Cinda) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at 'A'. The Outlook of the IDRs is Stable. Fitch has also affirmed the ratings on the notes issued by China Cinda Finance (2014) Limited at 'A'.

At the same time, Fitch has assigned Cinda's USD3bn medium-term note programme as well as USD1.3bn 3.125% notes due 2020 and the USD1.7bn 4.25% notes due 2025 issued under the programme final ratings of 'A'. The notes, issued by China Cinda Finance I (2015) Limited (the KW Note Issuer), are unconditionally and irrevocably guaranteed by China Cinda (HK) Holdings Company Limited (Cinda HK), a wholly owned subsidiary of Cinda. Cinda has granted a keepwell deed and a deed of equity interest purchase, investment and liquidity support undertaking to ensure that the guarantor, Cinda HK, has sufficient assets and liquidity to meet its obligations under the guarantee for the notes.

The notes are rated at the same level as Cinda's IDR, given the strong link between Cinda HK and Cinda and the keepwell deed and the deed of equity interest purchase, investment and liquidity support undertaking, which provide additional support and transfer the ultimate responsibility of payment to Cinda. In Fitch's opinion, both the keepwell deed and the deed of equity interest purchase, investment and liquidity support undertaking signal a strong intention from Cinda to ensure that the KW Notes Issuer and Cinda HK has sufficient funds to honour the debt obligations. The agency also believes Cinda intends to maintain its reputation and credit profile in the international offshore market, and is unlikely to default on offshore obligations. Additionally a default of Cinda HK could have significant negative repercussions on Cinda for any future offshore funding.

The assignment of the final ratings follows the receipt of documents conforming to information already received. The final rating is in line with the expected rating assigned on 13 April 2015.

A full list of rating actions can be found at the end of this commentary.

KEY RATING DRIVERS

Rating Linked With Sovereign: Cinda's ratings are linked to those of the Chinese sovereign (A+/Stable) and notched one down from the sovereign. This reflects Cinda's state ownership and strong control by the authorities. Strategic ties with the state mean a strong likelihood of extraordinary support, if needed. Therefore, Cinda is classified as a dependent public sector entity under Fitch's criteria.

Strategic Importance: Fitch expects strong sovereign support for Cinda, if needed, because it is one of four asset management companies (AMCs) established to mitigate financial risks, preserve state-owned assets, and promote the reform and development of China's financial system, and it has a strategic and policy role in China's economy. Moreover, these AMCs are licensed by the state as the premium wholesalers for non-performing assets in China.

Leading Position in Industry: Cinda has a solid and entrenched position among the big four AMCs. It was the first AMC allowed by the China Banking Regulatory Commission (CBRC) to acquire distressed assets from non-financial enterprises, and is one of only two AMCs permitted to access the interbank market.

State's Controlling Stake: The Ministry of Finance (MoF) holds 67.84% of Cinda while the National Social Security Fund, which is directly administered by the central government, holds 8.19%. The MoF nominates a majority of Cinda's board members and controls the entity through the board.

Tight Control and Supervision: By law, Cinda's senior management is scrutinised and approved by the CBRC, which also has significant influence on the entity's business operations through industry and business activity supervision. Cinda's senior management reports its operational and financial conditions to the MoF and CBRC on a regular basis. This is done to effectively communicate with its controlling shareholder and regulatory authorities.

Strong Growth: Cinda's core business is distressed asset management, which accounted for around 60% of total assets and 70% of gross profits in 2014. This business has grown sharply in recent years, with total assets doubling to CNY544bn at end-2014 from end-2012. Profitability has improved in line with the growth in activities, with profit before tax rising by over 27% in 2014 to CNY16.3bn.

Part of Cinda's business has been funded from borrowings. Bank financing and bonds issued amounted to CNY319bn at end-2014. The debt/equity ratio reached 323% at the end of 2014.

Risk from Rapid Expansion: The fast growth in Cinda's distressed asset portfolio in the past three years could lead to execution risks and pressure on its capital adequacy despite its recent capital replenishment. However, Fitch believes its industry experience and seasoned management partly mitigate the risks.

Inherent and Concentration Risks: As a distressed asset manager, Cinda's portfolio carries more inherent credit risk than a normal loan portfolio. Concentration risk arises from Cinda's large real estate exposure in its portfolio. However, the low collateral ratio of its distressed receivable portfolio and the significant potential for appreciation of its debt-equity swap asset portfolio partly neutralises the concentration risk.

RATING SENSITIVITIES

A positive or negative rating action could stem from a similar change in the ratings of the sovereign. Additionally, stronger explicit support could result in an equalisation of the rating with the sovereign.

Significant changes to its strategic importance or a further dilution of state shareholding to below 51% could result in Cinda no longer being classified as a dependent public sector entity and, therefore, no longer credit-linked to the sovereign rating.

The full list of rating actions is as follows:

Cinda
Long-Term Foreign Currency IDR affirmed at 'A'; Outlook Stable
Long-Term Local Currency IDR affirmed at 'A'; Outlook Stable

China Cinda Finance I (2015) Limited
USD3bn medium term note programme rates at 'A'
USD1.3bn 3.125% senior unsecured notes due 2020 rates at 'A'
USD1.7bn 4.25% senior unsecured notes due 2025 rates at 'A'

China Cinda Finance (2014) Limited
USD1bn 4.0% senior unsecured notes due 2019 affirmed at 'A'
USD500m 5.625% senior unsecured notes due 2024 affirmed at 'A'.