TEXT-Fitch Rates China Construction Bank 'A'; London-issued CNY Bond 'A(EXP)'

Thu Nov 1, 2012 10:38pm EDT

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(The following was released by the rating agency)

BEIJING/HONG KONG, November 02 (Fitch) Fitch Ratings has assigned China Construction Bank Corporation (CCB) Long- and Short-Term Local-Currency Issuer Default Ratings (IDR) of 'A' with Stable Outlook and 'F1', respectively.

The agency has also assigned an expected Long-Term local-currency rating of 'A(EXP)' to the CNY-denominated senior medium-term bond (MTB) issued through CCBL Funding PLC in London and guaranteed by CCB. The assignment of the final rating of the MTB issue is subject to final documentation conforming to that already received by Fitch. A full list of ratings is provided below.

CCB's Long-Term Local-Currency IDR is equalised with its Foreign-Currency IDR of 'A', both of which are driven by high expectations of state support in the event of stress. Fitch's view of support is based on CCB's systemic importance, its 57% ownership by the state and long track record of state support for the bank. CCB is China's second-largest bank with total assets of CNY13trn (USD2trn) and a deposit market share of 12% as of end-Q312. Any changes in the perceived ability or willingness of the state to continue supporting the bank could lead to a change in the bank's IDRs and instrument ratings.

The issue rating is derived directly from CCB's own Long-term Local-Currency IDR to reflect the full guarantee from CCB. CCBL Funding PLC is a wholly-owned special purpose vehicle (SPV) subsidiary of CCB (London) Limited. The SPV was established in 2012 solely to facilitate CNY bond issuance in London. The issue is capped at CNY2.5bn. All funds raised will be used to develop CCB's offshore CNY business and for other general corporate purposes.

The unconditional and irrevocable guarantee provided by CCB constitutes a direct, senior, unsecured obligation of the parent bank. Any event that would make enforcement of the deed of guarantee questionable would trigger a review, and could lead to a change in the issue's rating. Any shift in CCB's Long-Term Local-Currency IDR could also result in a change in the issue's rating.

The Local and Foreign Currency IDRs of entities whose ratings are underpinned by expectations of state support typically are differentiated when they operate in a country whose sovereign Local and Foreign Currency IDRs differ. However, in the case of China's state-owned banks, Fitch believes that equalisation of the IDRs is appropriate, given the strength of the sovereign's balance sheet in foreign currency, and that such reserves may be utilised for the purpose of extending any required support to the banks, whose liabilities tend to be denominated mostly in local currency. Furthermore, given China's capital controls, cross-border flows of local currency funds may also require pre-approval by state authorities, thereby indicating little differentiation between local- and foreign-currency, and on- and off-balance-sheet liabilities.

Newly assigned ratings of CCB are as follows:

- Long-Term Local Currency IDR assigned at 'A', Stable Outlook

- Short-Term Local Currency IDR assigned at 'F1' CNY Medium-Term Bonds issued by CCBL Funding PLC:

- Long-term Local Currency Rating assigned at 'A (EXP)'

The existing ratings of CCB are as follows:

- Long-Term Foreign-Currency IDR at 'A'; Stable Outlook

- Short-Term Foreign-Currency IDR at 'F1'

- Support Rating at '1'

- Support Rating Floor at 'A'

- Viability Rating at 'bb'

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