August 31, 2017 / 7:55 AM / in 10 months

Fitch Affirms China Orient Asset Management at 'A'; Outlook Stable

(The following statement was released by the rating agency) HONG KONG, August 31 (Fitch) Fitch Ratings has affirmed China Orient Asset Management Co., Ltd.'s (COAM) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDR) at 'A'. The Outlook is Stable. A full list of rating actions is at the end of this commentary. KEY RATING DRIVERS Ratings Linked to Sovereign: COAM's ratings are linked to those of the Chinese sovereign (A+/Stable) but are one notch lower. This reflects COAM's state ownership and strong control by the authorities, but also our mid-range assessment of the company's legal status and integration with the central government finance. Strategic ties mean a strong likelihood of extraordinary support, if needed. COAM is classified as a credit-linked public-sector entity under Fitch's criteria. Legal Status Attribute Mid-Range: COAM completed its conversion into a joint stock limited company from China Orient Asset Management Corporation in 2016. The other three asset management companies (AMC) - China Huarong (A/Stable), China Cinda (A/Stable) and China Great Wall (A/Stable) - have gone through the same market-oriented transformation. Fitch assesses the legal status attribute at mid-range because if necessary, the company can file for bankruptcy, and not all of its employees are civil servants. Strategic Importance Attribute Stronger: COAM and China's three other state-owned AMCs play an important role in safeguarding the stability of China's financial system. China's banking sector sold CNY513 billion non-performing assets (NPA) in 2016, and 90% was taken up by the big-four AMCs, according to company disclosure. The big-four players still dominate the market, despite the emergence of local AMCs, and focus on distressed asset management as their core business. Fitch expects China's recent economic slowdown will lead to an increased need for orderly distressed debt management. Strong sovereign support, underpinned by COAM's strategic and policy role in China's systematic financial stability, is likely to continue. Control Attribute Stronger: The Ministry of Finance (MoF) holds 98% of COAM, and the National Social Security Fund, which is directly administered by the central government, holds 2%. The MoF controls the entity through nomination of the board of directors. By law, COAM's senior management is supervised and approved by the China Banking Regulatory Commission (CBRC), which has significant regulatory influence on the entity's business operation. COAM's senior management regularly reports its operational and financial performance to the MoF and CBRC. Integration Attribute Mid-Range: Any default by the AMCs, including COAM, would have considerable impact on the sovereign's reputation and systematic stability of China's financial market. COAM also receives substantial policy support from the central government. However, as its financial liability does not benefit from an explicit sovereign guarantee, we assess the integration attribute at mid-range. Strengthening Capital: COAM plans to replenish its capital base by issuing new shares to a limited number of strategic investors in 2017, representing 15%-20% of total equity after placement. Fitch expects the MoF will maintain a controlling stake after the introduction of new strategic investors and state control will not be diluted. RATING SENSITIVITIES Positive or negative rating action could result from similar action on the sovereign. Stronger explicit support could lead to COAM's ratings being aligned with those of the sovereign. Any significant dilution of COAM's core activities in the acquisition and management of NPAs could lead to wider notching. A widening of notching down from the sovereign's rating could result if there are significant changes to COAM's strategic importance to the state, if the state loses its controlling stake in the entity or if the entity is no longer classified as a dependent state entity. The notes issued by Charming Light Investments Ltd. and Century Master Investment Co. Ltd are rated at the same level as COAM's IDR because the keepwell deed and deed of equity interest purchase undertaking transfer the ultimate responsibility of payment to COAM. The full list of rating actions is as follows: COAM Long-Term Foreign-Currency IDR affirmed at 'A'; Outlook Stable Long-Term Local-Currency IDR affirmed at 'A'; Outlook Stable Charming Light Investments Ltd. USD4 billion Medium-Term Note Programme affirmed at 'A' USD650 million 2.375% senior unsecured notes due 2021 affirmed at 'A' USD1.1 billion 3.75% senior unsecured notes due 2019 affirmed at 'A' USD400 million 5% senior unsecured notes due 2024 affirmed at 'A' Century Master Investment Co. Ltd USD600 million 4.75% senior unsecured notes due 2018 affirmed at 'A' Contact: Primary Analyst Samuel Kwok Associate Director +852 2263 9961 19/F Man Yee Building 68 Des Voeux Road Central Hong Kong Secondary Analyst Terry Gao Senior Director +852 2263 9972 Committee Chairperson Vladimir Redkin Senior Director +7 495 956 2405 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: Additional information is available on Applicable Criteria International Local and Regional Governments Rating Criteria - Outside the United States (pub. 18 Apr 2016) here Rating of Public-Sector Entities – Outside the United States (pub. 22 Feb 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. 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