TEXT-Fitch rates CITIC Bank International's subordinated notes 'BBB-(EXP)'

(The following statement was released by the rating agency)

Sept 20 - Fitch Ratings has assigned Hong Kong-based CITIC Bank International Limited's (CBI, 'BBB'/Stable) upcoming USD300m subordinated notes due 2022 an expected 'BBB-(EXP)' rating. The notes, which are without non viability clause, have a call option in 2017.

The final rating is contingent on the receipt of final documents conforming to information already received.

In accordance with its criteria, Fitch rates these notes one notch below CBI's Viability Rating (VR) of 'bbb' to reflect higher loss severity relative to senior unsecured instruments given their subordination. As the notes have no interest deferral features, Fitch has not applied additional notching for non-performance risk, i.e. going-concern loss-absorption.

The notes, which are to be issued under CBI's USD2bn medium-term note programme, will qualify as supplementary capital under the current banking (capital) rules of Hong Kong, and are expected to see lower funding cost compared with Basel III-compliant notes with non-viability clause. They are, however, expected to be phased out over a 10-year period starting from 1 January 2013 (amortising 10% each year) under Basel III transitioning rules, in the absence of a write-down mechanism if the bank becomes non-viable. Fitch has not assigned any equity credit to this debt due to lack of coupon flexibility.

The proceeds will be used to refinance CBI's outstanding USD250m subordinated notes callable in December 2012 and to support future expansion. The bank expects a slight decrease in its Tier 1 and total capital ratios from 11.6% and 17.9% at end-June 2012, respectively, following the debt issue and the redemption of the existing notes. This primarily reflects a moderate increase in risk-weighted assets in H212.

The issue rating is sensitive to the same considerations that might affect CBI's VR. Downward pressure on the ratings could arise if CBI were to materially accelerate its growth or significantly raised its risk appetite, particularly with regard to expansion into China and from business referrals from its 70.3% parent, China CITIC Bank ('BBB'/Stable).

The other ratings of CBI are unaffected and as follows:

- Long-Term Issuer Default Rating: 'BBB'; Outlook Stable

- Short-Term Issuer Default Rating: 'F3'

- Viability Rating: 'bbb'

- Support Rating: '2'

- Senior unsecured debt: 'BBB'

- Subordinated debt: 'BBB-'