OREANDA-NEWS. Fitch Ratings has assigned Bank of China Ltd.'s (BOC) long-term notes issued under its medium-term note (MTN) programme Long-Term Ratings of 'A'. The assignment of the final ratings follows the completion of the bond issuance and receipt of documents conforming to the information previously received.

Fitch assigned an expected rating of 'A(EXP)' and an expected National Long-Term Rating of 'AA+(twn)(EXP)' for the notes from BOC Taipei branch on 25 June 2015. Fitch also assigned an expected rating of 'A(EXP)' to the notes from BOC's branches in Hong Kong, Hungary, Abu Dhabi and Singapore on 26 June 2015.

The rated notes include the following senior unsecured notes issued under BOC's USD20bn MTN programme: 1) CNY2bn with two-year maturity issued by BOC Abu Dhabi branch; 2) EUR500m with three-year maturity issued by BOC Hungarian branch; 3) SGD500m with 4-year maturity issued by BOC Singapore branch; 4) three notes issued by BOC Hong Kong branch with maturities of three years (USD1bn), five years (USD800m) and 10 years (USD500m); and 5) four notes issued by BOC Taipei branch with maturities of five years (CNY1.5bn), seven years (CNY500m), 10 years (CNY500m) and 15 years (CNY500m).

The MTN programme was first rated 'A'/'F1' by Fitch on 9 December 2013, and subsequently affirmed on 5 September 2014. The size of this MTN programme was increased to USD20bn from USD10bn on 18 June 2015 to support BOC's asset expansion.

The proceeds from the notes will be used primarily to support BOC's overseas asset growth and its funding needs for China's One Belt One Road development strategy. BOC expects to have network coverage in more than half of the countries along the One Belt One Road route, either by organic growth or through acquisitions. BOC also plans to extend USD20bn in credit to related projects and entities in 2015 and aims to lend another USD100bn over the next three years.

KEY RATING DRIVERS

In Fitch's view, the branches in Taipei, Hong Kong, Hungary, Abu Dhabi and Singapore are part of the same legal entity, BOC. Therefore, the notes to be issued under the MTN programme represent direct, unconditional, unsecured and unsubordinated obligations of BOC, and are rated in line with BOC's Long-Term Issuer Default Rating (IDR) of 'A', which corresponds to its National Long-Term Rating of 'AA+(twn)'. BOC's IDR is underpinned by the agency's expectations of an extremely high probability of support from the Chinese government in the event of stress.

The 'A' rating assigned to the notes issued from the BOC Hungarian branch is higher than the country ceiling of 'BBB' for Hungary, underpinned by our expectation of full support from the bank's headquarters to the branch.

A default on notes issued by its Hungarian branch would be considered a default by BOC. The MTN Programme contains a cross default clause, whereby a default on any notes exceeding USD25m will accelerate the repayment of other tranches. Hence, we believe the likelihood of BOC allowing a default on notes issued by its Hungarian branch to be remote, as this would bring substantial reputational damage to the bank.

Moreover, Fitch is not aware of any restrictions on how notes issued by the Hungarian branch are to be repaid. That means BOC would be expected to utilise resources from within its global branch network to meet obligations due to noteholders, and we believe all noteholders will be domiciled outside Hungary. Therefore, our view is that the country ceiling (which captures transfer and convertibility risks) for Hungary will not constrain the rating assigned to the notes issued by BOC's Hungarian branch.

RATING SENSITIVITIES
Any changes to ratings of the notes will be directly correlated to changes in BOC's IDR, which will in turn reflect any shift in the perceived willingness or ability of China's government to support BOC in a full and timely manner.