March 3, 2017 / 6:56 AM / 7 months ago

Fitch Affirms AVICIL at 'BBB+'; Outlook Stable

(The following statement was released by the rating agency) TAIPEI, March 03 (Fitch) Fitch Ratings has affirmed China-based AVIC International Leasing Co., Ltd.'s (AVICIL) Long-Term Issuer Default Rating (IDR) at 'BBB+' and Short-Term IDR at 'F2'. The Outlook is Stable. AVICIL is the sole leasing platform within Aviation Industry Corporation of China (AVIC), a state-owned aircraft manufacturer, and is the only Chinese leasing company with an aircraft manufacturing background. AVIC controlled about 51% of AVICIL's shares at end-2016. AVIC is strategically important to China's national defence, acting as the backbone of the country's military and civilian aviation manufacturing industry, with an 80%-90% share of civilian aviation manufacturing output. KEY RATING DRIVERS AVICIL's ratings are driven by strong support from its parent, AVIC, which is assessed as having high credit strength due to its strong linkage with its 100% parent, the China sovereign (A+/Stable), through the State-Owned Assets Supervision and Administration Commission. AVICIL plays a strategic role to facilitate its parent's civilian aircrafts business. However, synergies remain limited, as the group's business contribution to AVICIL is a low 10%, although AVICIL's management and operation is highly integrated with its parent. AVICIL shares its parent's brand name and leverages its parent's civilian aviation business to expand its leasing activities. The parent supervises AVICIL's strategy and financial planning, controls AVICIL's board and senior management and provides liquidity and funding support via its group finance company. AVICIL's credit strength is considered modest on standalone basis, reflecting its weaker funding profile and high leverage. The company's asset growth exceeds its internal capital generation, thus it requires continued capital injections from its parent to maintain its capitalisation. AVICIL has modest profitability, but maintains stable asset quality. It relies on short-term wholesale funding and is operating with a short-term funding gap. Equipment leasing represented about 62% of AVICIL's total leasing portfolio at end-September 2016, followed by aircraft leasing (30%) and shipping leasing (8%). About 80% of AVICIL's clients are state-owned enterprises. The Stable Outlook reflects our expectation that AVICIL's strategic role and close operational integration with its parent, including strategy and treasury management, will remain unchanged. Thus, the Outlook is consistent with Fitch's credit views on AVIC and the Chinese sovereign. RATING SENSITIVITIES AVICIL's rating could be upgraded if its strategic role within the group is strengthened, in particular, if it funds a greater part of the group's leasing activities and increases its importance in assisting AVIC's business development in China's aviation industry. A rating downgrade could result from any weakening in the linkage between AVICIL and its parent, including significant ownership dilution or a reduction in AVICIL's strategic role in the group. There could be multiple rating downgrades if linkage was to disappear. Any changes in the ratings of AVIC and the China sovereign are likely to affect AVICIL's rating to the same extent. Contact: Primary Analyst Shirley Hsu Associate Director +886 2 8175 7606 Fitch Australia Pty Ltd, Taiwan Branch Suite 1306, 13F No. 205, Dunhwa North Road Songshan District Taipei City, Taiwan 105 Secondary Analyst Katie Chen Director +886 2 8175 7614 Committee Chairperson Mark Young Managing Director +65 6796 7229 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Global Non-Bank Financial Institutions Rating Criteria (pub. 15 Jul 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1019994 Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. 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