October 17, 2017 / 9:08 AM / in a year

Fitch Affirms China Great Wall at 'A'; Outlook Stable

(The following statement was released by the rating agency) HONG KONG, October 17 (Fitch) Fitch Ratings has affirmed China Great Wall Asset Management Co., Ltd.'s (China Great Wall) Long-Term Foreign- and Local-Currency Issuer Default Ratings at 'A' with a Stable Outlook. A full list of rating actions is at the end of this rating action commentary. The ratings on China Great Wall are credit-linked with those of the Chinese sovereign (A+/Stable), and notched down once. The rating reflects China Great Wall's state ownership and strong control by the authorities. Its strategic ties with the state mean there is a strong likelihood the company would receive extraordinary support from the sovereign, if needed. KEY RATING DRIVERS Sovereign Ownership: China Great Wall is a state-owned non-bank financial institution under China's company law. The Ministry of Finance (MoF) owns 97% of China Great Wall and directly controls China Great Wall. The National Social Security Fund (NSSF) and China Life Insurance (Group) Company hold the remaining stake in the company after taking up shares as part of a shareholder reform in 2016. China Great Wall plans to hold an IPO in the next two to three years, following in the footsteps of other state-owned asset management companies (AMCs) in China. Fitch expects the MOF to maintain a controlling stake in China Great Wall even after the shareholder reform and plan for an IPO. Fitch believes the loss of state control over the company would pose a risk to China's financial system, given the company is critical to resolving distressed debt in the country. Its legal status attribute is assessed at Mid-Range. Stronger Strategic Importance to China: Fitch believes the difference between China's four-largest AMCs is insignificant; they are highly necessary to absorb distressed debt, and are instruments that the state uses to reduce systemic risk and maintain confidence in the banking sector. We believe the government is highly likely to provide strong support to the AMCs to ensure financial-market stability. We do not expect the rapid, organic expansion of China Great Wall's non-policy business to dilute its strategic importance to the state as long as it remains a key player in its core business. No Dilution of Core Activities: China Great Wall's non-performing assets business represented around 50% of the group total assets at end-2016, similar to the level a year earlier. China Great Wall places highest priority on the Traditional Distressed-Asset Management business, which deals with non-performing loans (NPLs) from Chinese commercial banks. China Great Wall intends to strengthen its core business in the coming years to better fulfil its mandate to deal with NPLs from China's banking system. Subject to CBRC Supervision: China Great Wall, which was set up in 1999, is subject to the regulation and supervision of the China Banking Regulatory Commission (CBRC). Its senior management is scrutinised and appointed by CBRC, which also has significant influence over the entity's operations through industry- and business-activity supervision. Its control and oversight attribute is assessed at Stronger. Mid-Range Integration: The size of China Great Wall's balance sheet is relatively small compared with China's budget, and the company does not receive ongoing subsidies or capital injections from the government. Its financial liability accounted for less than 1% of China's GDP at end-2016. We assess the company's integration with the state budget at Mid-Range. Sufficient Capital-Adequacy Controls: Fitch believes China Great Wall has prudent risk controls and sufficient capital-adequacy controls. Fitch expects China Great Wall's capital adequacy ratio to increase further after the planned public listing. RATING SENSITIVITIES Sovereign Rating: Positive or negative rating action on the sovereign rating could prompt similar changes to that of China Great Wall. Stronger explicit support from the sovereign could cause the ratings to be aligned with that of China. Strategic Importance to State: Any significant dilution in China Great Wall's core activities in the acquisition and management of non-performing assets could cause the company's rating to be notched down further from that of the sovereign. This could also happen if significant changes in its strategic importance to the state were to occur, or if the state loses its controlling stake in the company and results in the company no longer classified as being credit-linked to the state. The full list of rating actions is as follows: China Great Wall Asset Management Co., Ltd. Long-Term Foreign-Currency IDR affirmed at 'A'; Outlook Stable Long-Term Local-Currency IDR affirmed at 'A'; Outlook Stable China Great Wall International Holdings III Limited USD800 million 2.625% senior unsecured notes due October 2021 affirmed at 'A' USD700 million 2.25% senior unsecured notes due October 2019 affirmed at 'A' USD500 million 2.75% senior unsecured notes due August 2020 affirmed at 'A' USD500 million 3.875% senior unsecured notes August 2027 affirmed at 'A' USD1 billion 3.125% senior unsecured notes due August 2022 affirmed at 'A' USD6.5 billion medium-term note programme affirmed at 'A' Contact: Primary Analyst Lorraine Liu Associate Director Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road Central, Hong Kong Secondary Analyst Terry Gao Senior Director +852 2263 9972 Committee Chairperson Christophe Parisot Managing Director +33 144299134 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. 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