Fitch Affirms Cinda Asset Management at 'A'; Outlook Stable
OREANDA-NEWS. Fitch Ratings has affirmed China Cinda Asset Management Co., Ltd.'s (Cinda) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at 'A'. The Outlook is Stable. A full list of rating actions can be found at the end of this commentary.
KEY RATING DRIVERS
Rating Linked With Sovereign: Cinda's ratings are credit linked to those of the Chinese sovereign (A+/Stable) and notched one down from the sovereign. This reflects Cinda's state ownership and strong control by the authorities. Strategic ties with the state mean a strong likelihood of extraordinary support, if needed. Cinda is classified as a credit-linked public sector entity.
Leading Industry Position: Cinda has a solid and entrenched position among the big four asset management companies (AMCs). It was the first AMC allowed by the China Banking Regulatory Commission (CBRC) to acquire distressed assets from non-financial enterprises.
Strategic Importance: As one of four AMCs established to mitigate financial risks, preserve state-owned assets and promote financial system reform and development, Cinda has a strategic and policy role in China's economy. Moreover, the state licenses these AMCs as the premium wholesalers for non-performing assets.
Under State Control: The Ministry of Finance (MoF) holds 67.84% of Cinda, while the National Social Security Fund, which is directly administered by the central government, holds 8.19%. The MoF nominates a majority of Cinda's board members and controls the entity through the board.
Tight Supervision: Cinda's senior management is scrutinised and approved by the CBRC, which also has significant influence on the entity's business operations through industry and business activity supervision. Cinda's senior management regularly reports operational and financial conditions to the MoF and CBRC to effectively communicate with its controlling shareholder and regulatory authorities.
Strong Growth: Cinda's core business is distressed asset management, which accounted for around 54% of total assets and 60% of pre-tax profits in 2015. This business has grown sharply in recent years, with total assets almost tripling to CNY714bn at end-2015 from end-2012. Profitability has improved in line with the growth in activities, with profit before-tax rising by over 21% in 2015 to CNY19.3bn.
Increased Pressure on Capital: Cinda has a strong capital position with a capital adequacy ratio of 16.11% at end-2015. However, the recent HKD68bn acquisition of Nanyang Commercial Bank could put pressure on Cinda's capital. Cinda is planning various ways to replenish its capital and optimise its capital structure to alleviate the post-acquisition pressure.
Inherent and Concentration Risks: As a distressed asset manager, Cinda's portfolio carries more inherent credit risk than a normal loan portfolio. Concentration risk arises from Cinda's large real estate exposure. However, the low collateral ratio of its distressed receivables and significant potential for appreciation of its debt-equity swap asset portfolio partly neutralises the concentration risk.
A positive or negative rating action could stem from a similar change in sovereign ratings. Additionally, stronger explicit support could result in an equalisation of the rating with the sovereign.
Significant changes to its strategic importance or a further dilution of state shareholding to below 51% could result in Cinda no longer being classified as a dependent public sector entity and, therefore, no longer credit-linked to the sovereign rating.
The full list of rating actions is as follows:
Long-Term Foreign-Currency IDR affirmed at 'A'; Outlook Stable
Long-Term Local-Currency IDR affirmed at 'A'; Outlook Stable
China Cinda Finance I (2015) Limited
USD3bn medium term note programme affirmed at 'A'
USD1.3bn 3.125% senior unsecured notes due 2020 affirmed at 'A'
USD1.7bn 4.25% senior unsecured notes due 2025 affirmed at 'A'
China Cinda Finance (2014) Limited
USD1bn 4.0% senior unsecured notes due 2019 affirmed at 'A'
USD500m 5.625% senior unsecured notes due 2024 affirmed at 'A'