May 30 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has affirmed China Taiping Insurance Holdings Co Ltd’s (CTIH) Issuer Default Rating (IDR) at ‘BBB+'. The agency has also affirmed CTIH’s operating companies, Tai Ping Life Insurance Co Ltd (TPL) and Taiping Reinsurance Co Ltd (TPRe), at Insurer Financial Strength (IFS) ‘A-’ and ‘A’ respectively. The Outlook on all ratings is Stable. At the same time, CTIH’s senior unsecured notes, issued through CIIH (BVI) Ltd and China Taiping Capital Limited, have been affirmed at ‘BBB’.
Key Rating Drivers
The rating action follows CTIH’s announcement to acquire assets at a total consideration of CNY10.6bn from its controlling shareholders, China Taiping Insurance Group (HK) Company Limited (TPG(HK)) and its ultimate parent, China Taiping Insurance Group Co. (TPG).
CTIH’s ownership in several controlled subsidiaries in China such as TPL, Tai Ping General Insurance Company Limited (TPI), Taiping Pension Company Limited (TPP), and Taiping Asset Management Company Limited (TPAM) will increase after the restructuring. Furthermore, several investment property holding entities and overseas property and casualty insurance businesses will be transferred to CTIH. As CTIH plans to issue new shares to fund the transaction, TPG’s stake in CTIH will increase from 53.27% to 68.96% upon the completion of the acquisition.
While the restructuring will further widen CTIH’s revenue streams and enhance its earnings stability, Fitch is cautious on its impact on the group’s adjusted financial leverage. The adjusted financial leverage of the group on a post-acquisition pro-forma basis would be 43.5% at end-December 2012, as CTIH will need to absorb about HKD4.3bn of bank loans upon the completion of the acquisition. CTIH’s adjusted financial leverage prior to the proposed restructuring stood at 39.2% at end-December 2012.
Fitch has received an explicit commitment from CTIH that it fully intends to lower its adjusted financial leverage to below 40% by the end of H114. CTIH has the flexibility to repay part of its bank loans by using internal resources after the restructuring.
Key rating triggers that could lead to a downgrade of CTIH and its operating entities include the inability of the company to reduce adjusted financial leverage to below 40% by the end of H114 and low interest coverage below 4x on a consolidated basis.
Negative rating triggers for TPRe include deterioration in underwriting result with a combined ratio consistently greater than 100% and significant change in its net probable maximum loss exposure and, for TPL, a reduction in local solvency ratio to below 150% on a sustained basis.
An upgrade of CTIH and its operating entities in the near term is unlikely, given its high financial leverage and moderate capital position.