February 23, 2017 / 6:52 AM / 6 months ago

Fitch Affirms the Ratings of Chinese Banks' Leasing Subsidiaries

(The following statement was released by the rating agency) TAIPEI, February 23 (Fitch) Fitch Ratings has today affirmed the Issuer Default Ratings (IDRs) of Chinese banks' leasing subsidiaries, all with stable outlooks. Fitch also affirmed the ratings on the notes issued by their respective overseas subsidiaries or special purpose vehicles (SPVs). CDB Leasing's Short-Term IDR has been upgraded to 'F1+' from 'F1' to be aligned with CDB's and the sovereign's Short-Term IDR. 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) Bank of Communications Financial Leasing Co., Ltd. (Bocom Leasing, A/Stable) CDB Leasing Co., Ltd (CDB Leasing, A+/Stable) CCB Financial Leasing Corporation Limited (CCB Leasing, A/Stable) ICBC Leasing was established by Industrial and Commercial Bank of China (ICBC; A/Stable) in 2007 as its wholly owned leasing subsidiary. The company provides aviation, shipping, and equipment leasing services, and is the largest lessor in China by managed assets while ICBC is the largest of China's state-owned commercial banks. ICBCIL Finance functions as the exclusive treasury platform for the offshore leasing operations of ICBC Leasing. Bocom Leasing was established by Bank of Communications Co., Ltd. (Bocom; A/Stable) in 2007 as its wholly owned leasing subsidiary. Bocom Leasing is now the second-largest financial leasing company in China by managed assets, while Bocom is the fifth-largest state-owned commercial bank. CDB Leasing is a subsidiary of China Development Bank (CDB; A+/Stable). CDB's shareholdings in CDB Leasing dropped to 64% from 89% after CDB Leasing's IPO, but CDB remains the largest shareholder - with a strong influence on CDB Leasing. CDB is the largest of China's policy banks, playing a key role in financing infrastructure construction projects and strategically important industries, as well as in China's global expansion strategy. CCB Leasing has been a wholly owned subsidiary of China Construction Bank Corporation (CCB; A/Stable) since 2012. CCB is the second-largest state-owned commercial bank. CCB Leasing's target customer sectors include the highways, subways, aviation and utility sectors, which are aligned with CCB's strategic focus on infrastructure areas. 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 parent banks, given their strategic importance and close linkage to the banks as core subsidiaries. Chinese banks are not allowed to provide leasing products directly, so the leasing subsidiaries provide leasing services to their parent banks' customers as core complementary products. The leasing subsidiaries' operations, business-development and risk-management practices are highly integrated with those of their parents. They share the parent banks' brand names, and enjoy strong synergies with the banks through leveraging the parents' strong customer base and network to expand their business. The parent banks have strong oversight over the subsidiaries' strategy and financial plans. In addition, the subsidiaries' key personnel, including the board, are usually under the strong influence of their parent banks. The sizes of the leasing subsidiaries remain small in relation to the parents, despite the rapid growth in recent years. The China Banking Regulatory Commission's (CBRC) regulations for financial leasing companies effective from March 2014 requires the founders of financial leasing companies to provide liquidity and capital support when necessary. All four leasing companies amended their articles of association to reflect the regulators' requirements. The parent banks 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 completed its IPO on the Hong Kong Stock Exchange in July 2016. We believe CDB Leasing's status as a listed company will improve the company's information disclosure and corporate governance structure, but it will not significantly change CDB Leasing's role as a core subsidiary of CDB, nor the close link and integration between CDB and CDB Leasing. CDB remains the majority shareholder of CDB Leasing, with strong influence through key management personnel appointments after the IPO. The parent banks' IDRs are driven by the support from the China sovereign (A+/Stable). We expect sovereign support to be passed down to the leasing subsidiaries through the parents in times of stress, given their roles as core subsidiaries and strong linkage with their parents. 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 substantially over the rating horizon. Thus, the Outlooks are consistent with the Stable Outlooks on the ratings of the parents and the Stable Outlook on China's sovereign rating. 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. ICBCIL Finance is owned by ICBC, but it is highly integrated into ICBC Leasing's operations as ICBC has authorised and mandated ICBC Leasing to exercise full managerial and operational control over ICBCIL Finance. Fitch believes that a default by ICBCIL Finance would create enormous reputational risk for ICBC Leasing and ICBC. SENIOR DEBT - ICBCIL Finance, CDBL Funding 1, CCBL (Cayman) and CCBL (Cayman) 1 The ratings on senior notes issued by ICBCIL Finance, CDBL Funding 1, CCBL (Cayman) Corporation Limited (CCBL (Cayman)) and CCBL (Cayman) 1 Corporation Limited (CCBL (Cayman) 1) are driven by our assessment of an extremely high probability of support from the leasing subsidiaries and their ultimate parent banks to this issuance. Fitch believes that a default by the issuers or the overseas subsidiaries would create enormous reputational risk for the leasing subsidiaries and their parents. The notes issued by these four entities - ICBCIL Finance, CDBL Funding 1, CCBL (Cayman) and CCBL (Cayman) 1 - all have the benefit of keepwell and asset-purchase deeds, which require the leasing subsidiaries to repurchase their overseas operating platforms' assets if such platforms do not have sufficient liquidity to meet their payment obligations or if there was an event of default. The repurchase agreements serve as an important mechanism to allow the leasing subsidiaries 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 keepwell and asset-purchase deeds suggest a strong propensity for the leasing subsidiaries to support their overseas operating platforms, if required. CDBL Funding 1 is an offshore SPV established by CDB Aviation Lease Finance Designated Activity Company (formally named as SinoAero Leasing Co., Designated Activity Company), which is the core operating platform directly wholly owned by CDB Leasing for its overseas aircraft-leasing business. CCBL (Cayman) and CCBL (Cayman) 1 are offshore SPVs established by CCB Leasing (International) Corporation Designated Activity Company (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. Both CDB Aviation Leasing and CCBLI are highly integrated into the leasing subsidiaries' operations, and are considered core subsidiaries of CDB Leasing and CCB Leasing. The notes issued by CDBL Funding 1, CCBL (Cayman) and CCBL (Cayman) 1 are unconditionally and irrevocably guaranteed by the leasing subsidiaries' primary overseas platforms, namely CDB Aviation and CCBLI, with the benefit of keepwell and asset-purchase deeds provided by the leasing subsidiaries to these overseas 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. SENIOR DEBT - Azure Nova Azure Nova International Finance Limited (Azure Nova) is an offshore SPV wholly owned by Bocom Leasing. The MTN programme under Azure Nova is unconditionally and irrevocably guaranteed by Bocom Leasing. The rating on the MTN programme and notes issued under the programme reflects Fitch's assessment of an extremely high probability of support from Bocom Leasing to Azure Nova. The senior notes issued under the MTN programme represent direct, general, unconditional and unsecured obligations of Azure Nova, and of Bocom Leasing by virtue of the deed of guarantee given by Bocom Leasing to Azure Nova's MTN programme. Such obligations rank pari passu with all other present and future unsecured obligations of Bocom Leasing. The programme's ratings reflect the ratings assigned to senior notes issued under the programme, and are in line with Bocom Leasing's Long-Term IDR of 'A'. RATING SENSITIVITIES IDRs The leasing subsidiaries' ratings are susceptible to any signs of a lower probability of support from their parent banks. This would include any major change in the ownership structure that results in the parents' shareholdings declining significantly and the parent banks losing the status and strong control as majority shareholders; changes in the regulatory-imposed obligation in the articles of association for the parent banks to provide capital and liquidity support; as well as a significant change in the leasing companies' roles as the parent banks' core subsidiaries or evolution of strategies that make them deviate significantly from the parents' overall strategy or policy role. Any change in the parent banks' 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 by the same magnitude. SENIOR DEBT The rating on the notes would be directly correlated with any notable change in the willingness or ability of the leasing subsidiaries and their parent banks to support their overseas platforms, if required. Likewise, any notable change in the perceived willingness or ability of China's government to support the parent banks and the leasing companies in a full and timely manner is likely to affect the rating on the guaranteed notes. Any change in regulation that causes the leasing subsidiaries and their parent banks to encounter practical difficulties in exercising the keepwell and asset-purchase deeds to support their overseas platforms, will also be likely to trigger a downgrade of the 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' USD300m 3.625% senior unsecured notes due 2026 affirmed at 'A' USD300m floating-rate senior unsecured notes due 2018 affirmed at 'A' USD400m 2.625% senior unsecured notes due 2018 affirmed at 'A' USD500m 2.375% senior unsecured notes due 2019 affirmed at 'A' USD500m 2.6% senior unsecured notes due 2018 affirmed at 'A' USD500m 2.75% senior unsecured notes due 2021 affirmed at 'A' USD600m 3.25% senior unsecured notes due 2020 affirmed at 'A' USD700m 2.125% senior unsecured notes due 2019 affirmed at 'A' USD700m 2.5% senior unsecured notes due 2021 affirmed at 'A' USD700m 3.2% senior unsecured notes due 2020 affirmed at 'A' CDB Leasing Co., Ltd (CDB Leasing) Long-Term IDR affirmed at 'A+'; Outlook Stable Short-Term IDR upgraded to 'F1+' from '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 Nova International Finance Limited (Azure Nova) Senior unsecured USD2bn medium-term note programme affirmed at 'A' USD1bn 2.625% senior unsecured notes due 2021 affirmed at 'A' USD500m 2.25% senior unsecured notes due 2019 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' CCBL (Cayman) 1 Corporation Limited (CCB (Cayman)1 ) Senior unsecured USD5bn medium-term note programme affirmed at 'A' and 'F1' USD400m 2.375% senior unsecured notes due 2019 affirmed at 'A' USD600m 2.75% senior unsecured notes due 2021 affirmed at 'A' Contact: Primary Analyst Katie Chen (ICBC Leasing and ICBCIL Finance, CDB Leasing and CDBL Funding 1, CCB Leasing, CCBL (Cayman), and CCBL (Cayman) 1) Associate Director +886 2 8175 7614 Shirley Hsu (Bocom Leasing and Azure Nova) Associate Director +886 2 8175 7606 Secondary Analyst Katie Chen (Bocom Leasing and Azure Nova) Associate Director +886 2 8175 7614 Shirley Hsu (ICBC Leasing and ICBCIL Finance, CDB Leasing and CDBL Funding 1, CCB Leasing, CCBL (Cayman), and CCBL (Cayman) 1) Associate Director +886 2 8175 7606 Committee Chairperson Tim Roche Senior Director +61 2 8256 0310 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. 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