(Repeat for additional subscribers)
May 12 (The following statement was released by the rating agency)
Fitch Ratings has assigned China Cinda Asset
Management Co., Ltd's (Cinda; A/Stable) USD1bn 4% senior unsecured notes due
2019 and USD500m 5.625% senior unsecured notes due 2024 final ratings of 'A'.
The proceeds will be used for working capital, investment and other general
The notes, to be issued by China Cinda Finance (2014) Limited, are to be
unconditionally and irrevocably guaranteed by Well Kent International Investment
Company Limited (Well Kent), a wholly owned subsidiary of Cinda.
Cinda has granted a keepwell deed and a deed of equity interest purchase,
investment and liquidity support undertaking to ensure that the guarantor, Well
Kent, has sufficient assets and liquidity to meet its obligations under the
guarantee for the US dollar notes.
The notes are rated at the same level as Cinda's Issuer Default Rating, given
the strong link between Well Kent and Cinda and the keepwell deed and the deed
of equity interest purchase, investment and liquidity support undertaking, which
provide additional support and transfer the ultimate responsibility of payment
In Fitch's opinion, both the keepwell deed and the deed of equity interest
purchase, investment and liquidity support undertaking signal a strong intention
from Cinda to ensure that Well Kent has sufficient funds to honour the proposed
debt obligations. The agency also believes Cinda intends to maintain its
reputation and credit profile in the international offshore market, and is
unlikely to default on offshore obligations. Additionally a default of Well Kent
could have significant negative repercussions on Cinda for any future offshore
The assignment of the final rating follows the receipt of documents conforming
to information already received. The final rating is in line with the expected
rating assigned on 29 April 2014.
KEY RATING DRIVERS
Rating Linked to Sovereign: Cinda's ratings are linked to China's sovereign
ratings (A+/Stable) and notched one down from the sovereign. This reflects its
central state ownership, the state's strong control over the company via the
Ministry of Finance (MOF) and China Banking Regulatory Commission (CBRC) and
Cinda's strategic ties with the state, which result in a strong likelihood of
extraordinary state support, if needed. Therefore, Cinda is classified as a
dependent public sector entity under Fitch's criteria.
Strong Control and Supervision: The MOF holds 67.84% of Cinda while the National
Social Security Fund (NSSF), which is directly administered by the central
government, holds 8.19%. As its controlling shareholder, the MOF nominates a
majority of Cinda's board members and exerts the strongest influence on
operation of the board. As one of Cinda's regulatory authorities, the MOF also
exerts significant influence and regulatory powers on its business operations.
By law, Cinda's senior management are scrutinized and approved by the CBRC,
which also has significant influence on its business operations through industry
and business activity supervision. To effectively communicate with its
controlling shareholder and regulatory authorities, Cinda's senior management
reports its operational and financial conditions to the MOF and CBRC on a
Strategic Importance: Cinda is one of four asset management companies (AMCs)
established to prevent and defuse financial risks, preserve state-owned assets
and promote the reform of the financial system in China. These AMCs are also the
wholesalers for non-performing assets (NPAs) under a policy that grants the
companies privileges in both transferring bulk NPAs and acquiring NPAs in
different regions of China.
Leading Industry Position: Cinda led in terms of total revenue, net profit and
net assets among the big four AMCs in 2013. Its accumulated distressed asset
acquisition and cash recovery also accounted for 35.5% and 38.3% of the
aggregate of the big four AMCs at end-2012. Moreover, it is the first AMC
allowed by CBRC to acquire distressed assets from non-financial enterprises and
one of two AMCs that have been granted permission by the central bank to access
the interbank market.
Risk from Rapid Expansion: The rapid growth in Cinda's distressed asset
portfolio in the past three years raises concerns over operational risks and
potential pressure on its capital adequacy despite its recent IPO. However,
Fitch believes its industry experience and seasoned management partly mitigate
Inherited and Concentration Risk: As a distressed asset manager, Cinda's
portfolio carries more inherited credit risk than a normal loan portfolio.
Concentration risk also arises from Cinda's exposure to the Chinese property and
coal mining sectors, which account for a meaningful portion of its distressed
receivable portfolio and of its debt-to-equity swap (DES) asset portfolio at
end-2013. However, the low collateral ratio (40%) of Cinda's distressed
receivable portfolio and the high potential of value appreciation of its DES
asset portfolio partly neutralise the concentration risk.
Mismatched Asset and Liabilities: Cinda is mainly funded by short- to
medium-term borrowings, while its distressed asset portfolio has a medium- to
long-term maturity. However, the company's large outstanding credit facilities
and long-term relationships with various banks and financial institutions partly
mitigate the risks arising from the mismatch in assets and liabilities.
A positive or negative rating action could stem from a similar change in the
ratings of the sovereign. Also stronger explicit support could result in an
equalisation of the rating with the sovereign.
However, significant dilution of Cinda's core activities in the purchase and
management of non-performing assets could lead to a widening in the notching
from the sovereign's rating.
Significant changes to its strategic importance or a dilution of state
shareholding to below 51% could result in it no longer being classified as a
dependent public sector entity and, therefore, no longer credit-linked to the