Fitch Rates CDB Leasing 'A+' with Stable Outlook

Thu Jul 10, 2014 9:17pm EDT

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(The following statement was released by the rating agency) HONG KONG, July 10 (Fitch) Fitch Ratings has today assigned China-based CDB Leasing Co., Ltd (CLC) a Long-Term Issuer Default Rating (IDR) of 'A+' and a Short-Term IDR of 'F1'. The Outlook is Stable. CLC has been a subsidiary of China Development Bank (CDB; A+/Stable) since 2008 and the bank owned 88.95% of CLC's shares at the end of 2013. CLC is highly integrated with CDB and is a core subsidiary providing leasing services to the bank's customers. CDB is the largest of China's policy banks, playing a key role in financing infrastructure and pillar industries, as well as in China's global expansion strategy. KEY RATING DRIVERS The Long-Term IDR of 'A+' reflects our view of an extremely high probability of support from CDB, as a result of CLC's strategic importance and close linkage to the bank. CLC provides leasing services to CDB's customers as a core complementary product and shares a risk management system with the bank. CLC shares CDB's brand name and enjoys strong synergies with the bank. CDB has strong oversight over the company's strategy and financial plans. In addition, the appointment of CLC's key personnel must be approved by the bank, and four of CLC's five board members are appointed by CDB. The China Banking Regulatory Commission (CBRC) announced new regulations for financial leasing companies in March 2014. The regulations require the founder of the companies to commit liquidity and capital support when necessary in the companies' articles of association, which legally obliges CDB to provide support to CLC. Fitch expects CLC to revise its articles of association to reflect the new obligations in 2014. CLC is relatively small compared with CDB; at end-2013, CLC only accounted for 1.7% of CDB's total assets and its contribution to CDB's net profit in 2013 was merely 2.4%. However, we expect CDB to remain the majority shareholder as CLC will continue to be strategically important for and highly integrated into CDB's operations. CDB's Long-Term IDR of 'A+' is driven by support from the China sovereign and is equal to the sovereign rating. Given CLC's strategic importance to and strong linkage with CDB, as well as its leading position in China's leasing industry, we expect sovereign support to be passed down to CLC through CDB, if needed. The Stable Outlook reflects our expectation that CLC's strategic importance to and close operational linkage with CDB will not change materially over the rating horizon. Thus, the outlook is consistent with the Stable Outlook on CDB's ratings. CLC was established in 1984 and is a leading leasing company in China with total assets of CNY142.4bn and 14% of market share by total assets at end-2013. It leverages on CDB's strong brand name and network to expand its business. CLC's revenue related to finance leases and operating leases accounted for 57% and 38%, respectively, of total revenue in 2013. The company has 71% of its lease assets located in mainland China. RATING SENSITIVITIES CLC's rating is sensitive to any signs of decreasing probability of support, which will lead to a downgrade of CLC's ratings. Any change in CDB's rating, which reflects any shift in the perceived willingness or ability of China's government to support CDB in a full and timely manner, is likely to affect CLC's rating in the same magnitude. Contact: Primary Analyst Jonathan Lee Senior Director +886 2 81757601 Fitch Ratings Limited, Taiwan Branch Suite 1306, 13F, 205, Tun Hwa N. Rd., Taipei Secondary Analyst Katie Chen Associate Director +86 10 8517 2135 Committee Chairperson James Watson Managing Director +7 495 956 9901 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available at www.fitchratings.com. Applicable criteria, "Rating FI Subsidiaries and Holding Companies", dated 10 August 2012 are available at www.fitchratings.com. Applicable Criteria and Related Research: Rating FI Subsidiaries and Holding Companies here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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