OREANDA-NEWS.  Fitch Ratings has affirmed China Huarong Asset Management Co., Ltd.'s (China Huarong) Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at 'A'. The Outlook of the IDRs is Stable. A full list of rating actions is at the end of this commentary.

China Huarong's ratings are linked to those of the Chinese sovereign (A+/Stable) and notched down. This reflects China Huarong's state ownership and strong control by the authorities. Strategic ties with the state mean a strong likelihood of extraordinary support, if needed.

KEY RATING DRIVERS
In 2014, seven strategic investors acquired shares in China Huarong, reducing the Ministry of Finance's stake to 77.49%, although the ministry remains the majority and controlling shareholder of China Huarong. China Huarong's senior management are monitored and approved by the China Banking Regulatory Commission, which also has significant influence over the entity's business operations through industry and business activity supervision.

China Huarong is one of four large national asset management companies (AMCs) established to mitigate financial risks, preserve state-owned assets, and promote the reform and development of China's financial system. These AMCs are also the premium wholesalers for non-performing assets (NPAs) in China.

The company has the largest consolidated balance sheet size and the highest net profit in 2014 among the big four national AMCs. It is one of the leading AMCs in terms of the number of debt-to-equity-swap (DES) transactions completed and market share in distressed asset acquisitions. It is also one of the two AMCs permitted to access the interbank market. However, the fast growth in China Huarong's distressed asset portfolio in the past three years gives rise to concerns over execution risk and potential pressure on capital adequacy. Fitch believes its industry experience and seasoned management mitigate this risk.

As a distressed asset manager, China Huarong's portfolio carries more inherent credit risk than a normal loan portfolio. Concentration risk arises from China Huarong's meaningful exposure to the property and manufacturing sectors in its portfolio. However, the low loan-to-value ratio of its distressed receivables portfolio and the potential for significant value appreciation of its DES assets portfolio reduce the concentration risk.

RATING SENSITIVITIES
A positive or negative rating action could result from a similar sovereign ratings change. 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 NPAs could lead to widening in notching.

Significant changes to its strategic importance or a dilution of the state's shareholding to below 51% may result in a widening of notching or the entity no longer being credit-linked to the sovereign.

The full list of rating actions is as follows:

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

Huarong Finance II Co., Ltd
USD 5bn medium-term note programme affirmed at 'A'
USD600m of 3.5% senior unsecured notes due 2018 affirmed at 'A'
USD1.2bn of 4.5% senior unsecured notes due 2020 affirmed at 'A'
USD1.4bn of 5.5% senior unsecured notes due 2025 affirmed at 'A'

Huarong Finance Co.,Ltd
USD1.2bn 4% senior unsecured notes due 2019 affirmed at 'A'
USD300m 3% senior unsecured notes due 2017 affirmed at 'A'