(Repeat for additional subscribers)
Jan 22 (The following statement was released by the rating agency)
Fitch Ratings has assigned China Orient Asset Management Corporation's (COAM; A-/Stable)
CNY2.5bn 4.10% senior unsecured notes due 2017 a final rating of 'A-'.
The notes, issued by Starway Assets Enterprises Inc., are unconditionally and
irrevocably guaranteed by China Orient Asset Management (International) Holding
Limited (COAMI), a wholly owned subsidiary of COAM.
In place of a guarantee, COAM has granted a keepwell deed and a deed of equity
interest purchase and investment undertaking to ensure that the guarantor,
COAMI, has sufficient assets and liquidity to meet its obligations under the
guarantee for the notes.
The 'A-' rating on the offshore bond is in line with the ratings of COAM, given
the strong link between COAMI and COAM and the keepwell deed and the deed of
equity interest purchase and investment undertaking, which provide additional
support and which transfer the ultimate responsibility of payment to COAM.
In Fitch's opinion, the deeds signal a strong intention from COAM to ensure that
COAMI has sufficient funds to honour the debt obligations. The agency also
believes COAMI intends to maintain its reputation and credit profile in the
international offshore market. Additionally a default by COAMI could have
significant negative repercussions on COAM for any future offshore funding.
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 15 January 2014.
KEY RATING DRIVERS
COAM is rated two notches below the China sovereign (A+/Stable), reflecting
ownership by the central government, and strong operational and strategic ties
with the government, resulting in a strong likelihood of extraordinary
government support if needed. COAM's rating also takes into account dilution of
the policy role and expected reduction in shareholding by the government.
COAM is therefore classified as a dependent public sector entity under Fitch's
criteria. Despite an anticipated dilution of the government's shareholding,
Fitch expects that the sovereign to continue to play a strong strategic role in
the entity and maintain tight control.
The government, through the Ministry of Finance, owns 100% of COAM. The ministry
provided initial capital contribution of CNY10bn and the central bank provided
subsidised loans to establish COAM. In addition, Fitch expects that COAM's
ultimate losses on the purchase and disposal of policy-oriented non-performing
assets (NPA) will be borne by the finance ministry.
COAM has no board of directors and its major strategic decisions are made by the
finance ministry. Daily operations are managed by a president, along with eight
other managers appointed by the China Banking Regulation Commission (CBRC),
which regulates COAM's asset management activities. The management is required
to report on operational and financial conditions on a regular basis to the
finance ministry and CBRC, and submit annual operational and financial results
to the ministry.
In the past five years, COAM has rapidly diversified its business, including
into insurance, securities, trust and finance leasing. Although the
diversification of business lines can smooth out the volatility in profit and
make use of COAM's extensive client base and network, execution risk also rises
along with the fast expansion.
Concentration risk arises from COAM's exposure to the Chinese property market,
representing around 78% of its accounts and loan receivables portfolio at the
end of 2012. However, one mitigating factor is most of its outstanding portfolio
is either guaranteed by a third party or secured by assets with loan to value
ratio at less than 40%.
COAM is mainly funded by short-term borrowings while the maturity of its NPA
portfolio may be extended. Nevertheless, the large outstanding credit facilities
as well as its good long-term relationships with various banks and financial
institutions to some extent mitigate the risks arising from mismatched assets
COAM is one of four asset management companies owned by the Ministry of Finance
that it established to preserve state-owned assets, prevent and defuse financial
risks and promote reforms of state-owned entities. The four state-owned asset
management companies are also the premium wholesalers for NPA under a policy
that grants them privileges in transferring bulk NPAs and acquiring NPAs across
different regions in China.
A positive rating action would stem from a similar change in the ratings of the
sovereign and/or stronger explicit and implicit support from government.
Material changes to its strategic importance to the government or a dilution in
the government shareholding to less than 51% could result in the entity no
longer being classified as a dependent public sector entity and therefore no
longer credit-linked to the sovereign rating, which may result in ratings