OREANDA-NEWS. Fitch Ratings has today assigned China-based China International Capital Corporation Limited (CICC) a Long-Term Issuer Default Rating (IDR) of 'BBB+' and Short-Term IDR of 'F2'. The Outlook is Stable. Fitch has also assigned China International Capital Corporation (Hong Kong) Limited (CICCHK) a Long-Term IDR of 'BBB+' with a Stable Outlook and Short-Term IDR of 'F2'. CICCHK is a wholly owned subsidiary of CICC.

KEY RATING DRIVERS
IDRS on CICC and CICCHK

CICC's ratings reflect Fitch's belief that extraordinary support from Central Huijin Investment Ltd. (Central Huijin) would be forthcoming, if needed. This is given CICC's strategic role in supporting China's goal to establish an internationally influential investment bank, and its strong linkage with Central Huijin, a wholly owned subsidiary of China Investment Corporation (CIC).

CIC is a sovereign wealth fund and the vehicle that holds controlling investment stakes in China's four largest banks on behalf of the government. CICC is the only entity that shares the same chairman with the CIC, and Central Huijin. In assigning the rating to CICC, Fitch has taken the Chinese sovereign (A+/Stable) as the ultimate source of extraordinary support to CICC and notched the rating three levels down. This not only recognises CICC's linkages to the Chinese sovereign, but also its considerably lower systemic importance compared with that of the largest Chinese state-owned banks.

Central Huijin is CICC's largest shareholder, and holds 28.6% of the investment bank at end-2015. CICC accounts for less than 1% of Central Huijin's total assets at end-2015, though it has a unique role in China in shepherding economic liberalisation, enhancing investment banking expertise, and facilitating restructuring of state-owned enterprises. The company has leading market positions in underwriting, fixed-income business and advisory in large complex corporate restructurings, especially those involving cross-border placements.

The ratings on CICCHK are aligned with those of CICC, reflecting our assessment of an extremely high probability of support from CICC and its core shareholder Central Huijin. CICCHK is the sole offshore investment banking arm of CICC. It is wholly owned by CICC, highly integrated into the latter's operations and is a core subsidiary. It handles all of CICC's cross-border investment banking business, which is integral to CICC's strategic focus in expanding its international franchise. CICCHK represented 26.7% of CICC's total assets and accounted for 18.9% of CICC's total revenue in 2015.

CICC's Stable Outlook reflects our expectation that CICC's importance to the Chinese sovereign will not change materially over the rating horizon.

Fitch considers CICC's standalone credit profile as among the best of Chinese securities firms, driven primarily by its established risk management culture, restrained risk appetite and sound asset quality. Nonetheless, the rapid evolution of the Chinese financial market weighs on its credit profile, as does the unpredictable regulatory interventions, both of which could result in sudden plunges in market liquidity.

CICC maintains a bond investment portfolio that has a higher credit quality than those of its local peers. Fitch estimates over 90% of its bond investments are either in sovereign issues or internationally comparable investment-grade credits at end-2015.

RATING SENSITIVITIES
IDRS on CICC and CICCHK

A rating downgrade could result from a weakening in the linkages between CICC and Central Huijin. This could include a significant dilution of Central Huijin's stake in CICC, or if CICC's strategic importance to the Chinese government declines, which may be reflected in CIC surrendering its chairmanship and reducing strategic involvement.

CICC's ratings could be upgraded if it becomes more systemically important to the Chinese government, although Fitch believes this possibility to be remote.

CICCHK's ratings would change in line with CICC's ratings. CICCHK's ratings could be downgraded if CICC shows signs of a reduced willingness and ability to support the subsidiary.