OREANDA-NEWS. Fitch Ratings has affirmed Beijing State-Owned Assets Management Co., Ltd. 's (BSAM) Long-Term Foreign Currency Issuer Default Rating (IDR) of 'A' with Stable Outlook and senior unsecured rating of 'A'. Fitch has also assigned 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 final ratings of 'A'. The proceeds will be used to refinance certain existing indebtedness and for working capital and general corporate purposes.

The notes are 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 rated 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.

The assignment of the final ratings follows the receipt of documents conforming to information already received. The final ratings are in line with the expected ratings assigned on 11 May 2015.

KEY RATING DRIVERS
Links to Beijing Municipality: BSAM's ratings are credit-linked to 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.

Beijing's Strong Creditworthiness: Beijing municipality has a strong budget performance, diversified socio-economic profile and strategic importance as China's capital city. The city's resilient property market also strengthens the municipality's fiscal flexibility. The strengths are partially mitigated by its moderately high tax-supported municipal debts, contingent liabilities arising from its state-owned entities, and relatively weak transparency.

Strategic Importance: BSAM is a key investment holding platform of the Beijing municipal government to manage a diversified portfolio including health care, technology, property development, manufacturing and environmental protection, sports, culture and tourism with both social and economic purposes. BSAM also holds stakes in key Beijing financial institutions on the government's behalf. The lack of full flexibility in managing these investments also demonstrates the close linkage between BSAM and the Beijing municipal government.

Balancing Policy and Commercial Objectives: One of BSAM's core operations is to incubate investments in new industries that the Beijing government seeks to develop for the municipality. As these investments mature, BSAM will exit them and recycle the capital into new projects that support Beijing's economic development. BSAM makes these investments in close consultation with the municipal government to determine their commercial viability.

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

Solid Track Record of Support: BSAM received CNY11.4bn in investments from the Beijing municipality between 2002 and 2013, amounting to approximately 33% of BSAM's total equity at end-2014. Fitch believes the government support for BSAM will continue as it invests in new businesses that are encouraged by the municipality. That BSAM is chosen to help develop new but important social goods shows that it is a policy tool and implies future government support such as the long-lasting preferential tax policy towards BSAM.

Tight Control and Supervision: The group's board members are all appointed by the Beijing municipality. The group's financing plan and indebtedness level are also closely monitored by the municipality. BSAM is also required to report to government its operational and financial results on a regular basis.

RATING SENSITIVITIES
Rating Upgrade: An upgrade of Fitch's credit view on the Beijing municipality as well as a stronger or more explicit support commitment from the municipality may trigger a positive rating action on BSAM.

Rating Downgrade: Significant weakening of BSAM's strategic importance to the municipality, dilution of the municipality's shareholding, and/or reduced explicit and implicit municipality support, may result in a downgrade. A downgrade could also stem from a weaker fiscal performance or increased indebtedness of the municipality, leading to deterioration in the sponsor's creditworthiness.