OREANDA-NEWS. Fitch Ratings has today affirmed the Issuer Default Ratings (IDRs) of five leasing subsidiaries of Chinese banks. The Outlooks are Stable. Fitch also affirmed the ratings on the notes issued by their respective overseas subsidiaries or special purpose vehicles (SPVs). A full list of rating actions is at the end of this rating action commentary.

The leasing subsidiaries are:
ICBC Financial Leasing Co., Ltd (ICBC Leasing, A/Stable)
ICBCIL Finance Co., Ltd (ICBCIL Finance; A/Stable)
CDB Leasing Co., Ltd (CDB Leasing, A+/Stable)
Bank of Communications Financial Leasing Co., Ltd (BOCOM Leasing, A/Stable)
CCB Financial Leasing Corporation Limited (CCB Leasing, A/Stable)

ICBC Leasing is the wholly owned leasing arm of Industrial and Commercial Bank of China (ICBC; A/Stable). The company provides aviation, shipping, and equipment leasing services and is the largest lessor in China while ICBC is the largest of China's state-owned commercial banks and the largest bank in the world by assets. ICBCIL Finance functions as the exclusive treasury platform for the offshore leasing operations of ICBC Leasing.

CDB Leasing is 88.95%-owned by China Development Bank Corporation (CDB; A+/Stable) at end-2015. CDB is the largest of China's policy banks, and it plays a key role in financing infrastructure and pillar industries, as well as in China's global expansion strategy.

BOCOM Leasing is the wholly owned leasing subsidiary of Bank of Communications Co., Ltd. (BOCOM; A/Stable). BOCOM is the sixth-largest state-owned commercial banks in China.

CCB Leasing is the wholly owned subsidiary of China Construction Bank Corporation (CCB; A/Stable), and it received a capital injection of CNY3.5bn from CCB in February 2015. CCB is the second-largest state-owned commercial bank in China.

KEY RATING DRIVERS

IDRS - ICBC Leasing, CDB Leasing, BOCOM Leasing, CCB Leasing

All four leasing subsidiaries' IDRs are underpinned by our view of an extremely high probability of support from their parents given their strategic importance and close linkage to the banks as core subsidiaries. They provide leasing services to the banks' customers as core complementary products and their operations, business development and risk management practices are highly integrated with their parents'. The sizes of the leasing subsidiaries are relatively small compared to the parents despite of the rapid growth in recent years.

The leasing subsidiaries share the parents' brand names and enjoy strong synergies with the banks through leveraging on the parents' strong brand names and networks to expand their business. The parents have strong oversight over the subsidiaries' strategy and financial plans. In addition, the subsidiaries' key personnel, including the board, are usually under strong influence of their parents.

The China Banking Regulatory Commission (CBRC) announced new regulations for financial leasing companies in March 2014 to include in their articles of association a requirement that the founders of the financial leasing companies commit to provide liquidity and capital support when necessary. All four leasing companies amended their articles of association to incorporate the new requirements. The parents are now legally obliged to provide capital or liquidity support when needed, and have increased credit lines for their leasing subsidiaries as additional liquidity sources.

CDB Leasing submitted plans in late February 2016 for an IPO on the Hong Kong Stock Exchange. Fitch expects CDB to remain the majority shareholder of CDB Leasing after the IPO, which will not materially change CDB Leasing's role as a core subsidiary of CDB nor the close link and integration between CDB and CDB Leasing. Becoming a listed company would help CDB Leasing to improve its information disclosure and corporate governance structure, but we expect CDB's influence over CDB Leasing to remain strong and CDB Leasing's policy role not to change materially.

The parents' IDRs are driven by support from the China sovereign (A+/Stable). Given the strategic importance to and strong linkage with their parents, we expect sovereign support to be passed down to the leasing subsidiaries through the parents, if needed.

The Stable Outlooks reflect our expectation that the leasing subsidiaries' strategic roles as core subsidiaries and close operational linkage with their parent banks will not change materially. Thus, the Outlooks are consistent with the Stable Outlooks on the ratings of the parents and the Stable Outlook on China's sovereign rating, the main driver of the parents' ratings.

IDR - ICBCIL FINANCE

The ratings on ICBCIL Finance primarily reflect our assessment of an extremely high probability of support from ICBC Leasing and ICBC, its ultimate parent. Although ICBCIL Finance is owned by ICBC and not by ICBC Leasing, it is highly integrated into ICBC Leasing's operations and ICBC has authorised and mandated ICBC Leasing to exercise full managerial and operational control over ICBCIL Finance. In Fitch's opinion, a default by the issuer would create enormous reputational risk for ICBC Leasing and its parent.

SENIOR DEBT - ICBCIL FINANCE, CDBL FUNDING 1 AND CCBL (CAYMAN)

The ratings on senior notes issued by ICBCIL Finance, CDBL Funding 1 and CCBL (Cayman) Corporation Limited (CCBL (Cayman)), are mainly driven by our assessment of an extremely high probability of support from the leasing companies and their ultimate parents to these entities. Fitch believes that a default by the issuers or the overseas subsidiaries would create enormous reputational risk for the leasing companies and their parents.

CCBL (Cayman) is an offshore SPV established by CCB Leasing (International) Corporation Limited (CCBLI), which functions as the primary overseas platform for CCB Leasing's aviation leasing business. CCBLI is wholly owned by CCB through CCB International Innovative Investment Limited, but CCB Leasing has full managerial and operational control over CCBLI based on the service agreement with CCB International Innovative Investment Limited. CDBL Funding 1 is an offshore SPV established by SinoAero Leasing Co., Limited (SAL), the core operating platform indirectly wholly owned by CDB Leasing for the overseas aircraft leasing business. Both SAL and CCBLI are highly integrated into the leasing companies' operations and are considered core subsidiaries of CDB Leasing and CCB Leasing.

The notes issued by CDBL Funding 1 and CCBL (Cayman) are unconditionally and irrevocably guaranteed by the leasing companies' primary overseas platforms, namely SAL and CCBLI, with the benefit of a keepwell and asset purchase deed provided by the leasing companies to these platforms. The notes are guaranteed and constitute direct, general and unsecured obligations of overseas platforms, and will rank pari passu with all their existing and future unsubordinated and unsecured obligations.

The notes of all three entities - ICBCIL Finance, CDBL Funding 1, and CCBL (Cayman) - have the benefit of keepwell and asset purchase deeds, which require the leasing companies to repurchase their overseas operating platforms' assets if such platforms do not have sufficient liquidity to meet their payment obligations or an event of default. The repurchase agreements serve as an important mechanism to allow the leasing companies to provide foreign-currency liquidity to their overseas operating platforms in a timely manner. Approval from the State Administration of Foreign Exchange for these foreign-currency transfers is not required because buying assets for leasing purposes is a part of the leasing companies' operating activities sanctioned by the relevant authorities, including the CBRC.

There could be practical difficulties in enforcing the keepwell and asset purchase deeds, which are not as strong as a guarantee. Nevertheless, the repurchase agreement and the cross-default clauses at the parent level suggest a strong propensity for the leasing companies to support their overseas operating platforms, if required.

SENIOR DEBT - AZURE ORBIT II

Azure Orbit II is an offshore SPV managed by BOCOM Leasing. Azure Orbit's notes were issued under the issuer's existing USD1bn medium-term note (MTN) programme, which was rated by Fitch on 17 April 2014 and affirmed on 10 July 2015. The notes have the benefit of a deed of guarantee given by BOCOM's Macau Branch in support of Azure Orbit II's MTN programme.

The notes issued under the MTN programme represent direct, general, unconditional and unsecured obligations of BOCOM by virtue of the deed of guarantee given by the bank's Macau Branch. Such obligations rank pari passu with all other present and future unsecured obligations of the Macau Branch. Fitch views the Macau Branch as part of the same legal entity and plays an important role in developing the bank's overseas businesses.

RATING SENSITIVITIES

IDRS

The leasing companies' ratings are sensitive to any signs of decreasing probability of support. This would include any material change in the ownership structure that results in the parents' shareholdings declining significantly and the banks losing the status of majority shareholders, changes in the regulatory-imposed obligation in the articles of association for the parents to provide capital and liquidity support, as well as a material change of the leasing companies' roles as the parent banks' core subsidiaries or evolution of strategies that make them deviate from the parents' overall strategy or policy role. These sensitivities are more pronounced in the case of CDB Leasing due to its planned IPO.

Any change in the parents' ratings, which reflects any shift in the perceived willingness or ability of China's government to support the parents in a full and timely manner, is likely to affect the leasing companies' ratings in the same magnitude.

SENIOR DEBT

The rating on the notes would be directly correlated to any notable change in the willingness or ability of the leasing companies to support their overseas platforms, if required. Likewise, any notable change in the perceived willingness or ability of China's government to support the parents and the leasing companies in a full and timely manner is likely to affect the rating on the guaranteed notes.

The rating actions are as follows:

ICBC Financial Leasing Co., Ltd (ICBC Leasing)
Long-Term IDR affirmed at 'A'; Outlook Stable
Short-Term IDR affirmed at 'F1'

ICBCIL Finance Co. Ltd (ICBCIL Finance)
Long-Term IDR affirmed at 'A'; Outlook Stable
Senior unsecured USD5bn medium-term note programme affirmed at 'A'
Senior unsecured USD floating rate notes due 2018 affirmed at 'A'
Senior unsecured USD floating rate notes due 2020 affirmed at 'A'

CDB Leasing Co., Ltd (CDB Leasing)
Long-Term IDR affirmed at 'A+'; Outlook Stable
Short-Term IDR affirmed at 'F1'

CDBL Funding 1
USD250m 3.25% guaranteed notes due 2019 affirmed at 'A+'
USD400m 4.25% guaranteed notes due 2024 affirmed at 'A+'

Bank of Communications Financial Leasing Co., Ltd (BOCOM Leasing)
Long-Term IDR affirmed at 'A'; Outlook Stable
Short-Term IDR affirmed at 'F1'

Azure Orbit II International Finance Limited (Azure Orbit II)
Senior unsecured USD1bn medium-term note programme affirmed at 'A'
EUR100m senior unsecured floating rate notes due 2018 affirmed at 'A'
USD500m 3.375% senior unsecured notes due 2019 affirmed at 'A'
USD385m 3.125% senior unsecured notes due 2020 affirmed at 'A'

CCB Financial Leasing Corporation Limited (CCB Leasing)
Long-Term IDR affirmed at 'A'; Outlook Stable
Short-Term IDR affirmed at 'F1'

CCBL (Cayman) Corporation Limited (CCB (Cayman))
USD500m 3.25% guaranteed notes due 2020 affirmed at 'A'