OREANDA-NEWS. Fitch Ratings has assigned China Construction Bank Corporation's (CCB; A/Stable) upcoming Basel III-compliant Tier 2 subordinated bonds an expected 'BBB+(EXP)' rating.

The bonds are the bank's second offshore Basel III-compliant notes, following the first notes issued and rated 'BBB+' on 14 November 2014. Both bonds constitute direct, unsecured and subordinated obligations of the bank, ranking pari passu without any preference among themselves.

The upcoming bonds will be denominated in US dollars and listed on the Hong Kong Stock Exchange. They will qualify as Tier 2 capital of the bank. CCB has options to redeem the bonds in full in 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.

The final rating on the bonds is contingent on the receipt of the final documents conforming to information already received.

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 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'