March 22, 2017 / 2:42 AM / 9 months ago

Fitch Publishes Far East Horizon's 'BBB-' Rating

(The following statement was released by the rating agency) HONG KONG/TAIPEI, March 21 (Fitch) Fitch Ratings has published China-based Far East Horizon Limited's Long-Term Issuer Default Rating (IDR) of 'BBB-' and Short-Term IDR of 'F3'. The Outlook is Stable. Far East Horizon is the fifth-largest leasing company overall and among the largest independent leasing companies in China by assets. It has a market share of about 3% of the leasing market in China. Far East Horizon's major shareholders include SinoChem Group (23.3%), China Minsheng Investment Corp., Ltd. (13.4%), Cathay Life Insurance Co., Ltd. (9.2%) and the vice chairman of the board and CEO, Kong Fanxing (7.2%). The remaining shares are owned by the public. KEY RATING DRIVERS Far East Horizon's ratings are driven by its adequate risk appetite, which features effective underwriting policies and process, strengthened risk control and contained market risks. The ratings also reflect its satisfactory funding and liquidity profile, asset quality and franchise. The company has a stable management team, which has executed a well-developed strategy and achieved its business targets and financial objectives. The company has a consistent strategy, which contributes to the steady, progressive development of its franchise and corporate culture. Far East Horizon has an institutionalised and well-defined risk management system. Risk control has been progressively enhanced, while asset quality has held up steadily and compares stronger than that of Chinese banks. There have been no major control or compliance incidents in the last few years. The company has modest appetite for market-risk exposure and has kept interest rate and currency risk exposures low, while actively managing its asset/liability match. The company has been improving its funding base with solid access to diverse funding channels. Its established market presence allows it to tap the debt market with adequate flexibility. For instance, Far East Horizon is one of China's largest asset-backed securities issuers, with 14 issuances totalling CNY35 billion in 2015 and 2016, accounting for about 24% of total asset-back securities issuances in the market. It also has a diversity of debt issuances, with issuances in both onshore and offshore markets. We expect Far East Horizon to sustain its satisfactory asset quality, reflecting its focus on non-cyclical and livelihood-related industries, diversified finance portfolio and adequate underwriting risk controls. The company's receivables composition manifests its strategic focus on domestic consumption-related industries and public service sectors, which have lower cyclicality and reliable cash flow, and are in line with government policy and demographic trends. Healthcare, education, and infrastructure accounted for the majority of Far East Horizon's receivable portfolio at between 54% and 56% from 2012 to June 2016. Far East Horizon maintained its non-performing asset ratio at a healthy 0.6%-1.0% from 2010 to June 2016, while impairment charges have remained below 100bp. Actual losses are markedly smaller, as Far East Horizon has high recovery rates on its non-performing assets. The company has established itself as one of China's largest leasing companies with leading positions in healthcare and education. Far East Horizon fills a market niche in leasing items in small amounts, such as hospital equipment, while most other large leasing companies serve as the leasing arms of their state-bank parents and target big-ticket items, such as aircraft and infrastructure projects. It also offers advisory and brokerage services by leveraging its experience and expertise in various industries, thus transforming itself into a competitive one-stop solution house beyond a pure financing company. This helps generate substantial non-interest income and increase customer loyalty. We see the value-added services as protecting profitability and the customer-base amid keen competition. The Stable Outlook on Far East Horizon's IDR reflects our expectation that its performance and strategy remain unchanged. RATING SENSITIVITIES An upgrade is not probable in the short term. However, a major improvement in Far East Horizon's funding profile, including securing a stable funding pool and extensive advancement in its market status, could result in a rating upgrade. The ratings may be downgraded if there is an opportunistic shift in Far East Horizon's business model toward greater risk-taking without a commensurate increase in risk buffers. China's operating environment is developing and is less stable, which could limit an improvement in the company's credit strength and potentially undermine its perceived funding strengths. Contact: Primary Analyst Leo Wah, CFA Director +852 2263 9951 Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road Central Hong Kong Secondary Analyst Katie Chen Director +886 2 8175 7614 Committee Chairperson Mark Young Managing Director +65 6796 7229 Date of relevant rating committee: 8 March 2017 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: Additional information is available on Applicable Criteria Global Non-Bank Financial Institutions Rating Criteria (pub. 10 Mar 2017) here Global Non-Bank Financial Institutions Rating Criteria -- Effective July 15, 2016 – March 10, 2017 (pub. 15 Jul 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1020888 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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