Fri Sep 5, 2014 3:37am EDT
(The following statement was released by the rating agency) HONG KONG/BARCELONA, September 05 (Fitch) Fitch Ratings has affirmed China Orient Asset Management Corporation's (COAM) Long-Term Foreign- and Local- Currency Issuer Default Ratings (IDRs) at 'A-'. The Outlook is Stable. A full list of rating actions may be found at the end of this commentary. KEY RATING DRIVERS COAM's ratings are linked to those of the Chinese sovereign (A+/Stable) and rated two notches lower. This reflects COAM's state ownership, strong control and strategic ties with the state, which result in a strong likelihood of extraordinary state support, if required. COAM is classified as a dependent public-sector entity under Fitch's rating criteria, and the agency has applied a top-down approach in its analysis of COAM. While the Ministry of Finance (MoF) owns 100% of COAM and controls the entity through COAM's management, the agency expects MoF to dilute its shareholding in COAM in the near future, although it will still maintain a majority controlling stake. COAM is one of four big asset management companies (AMCs) established to mitigate financial risks, preserve state-owned assets, and promote the reform and development of China's financial system. These AMCs are also the premium wholesalers for non-performing assets (NPAs) in China. COAM has no board of directors - major strategic decisions are made by MoF. Daily operations are managed by its president and seven executives appointed by the China Banking Regulation Commission (CBRC), which acts as regulator for the asset management activities. COAM's management reports to the MoF and CBRC about its operational and financial performance on a regular basis. The fast growth in COAM's distressed asset portfolio in the past three years has given rise to concerns over execution risk and potential pressure on capital adequacy. Its fast growing restructured assets portfolio have yet to weather through cycles and may face pressure on asset quality in the event of an economic downturn. However, Fitch believes COAM's industry experience and seasoned management partly mitigate this risk. The agency expects COAM's total assets and net profit to grow by around 15-20% per annum in the next two to three years. As a distressed asset manager, COAM's portfolio carries more inherent credit risk than a normal loan portfolio. Concentration risk arises from COAM's meaningful exposure to the Chinese property sectors in its portfolio. However, the low loan/value ratio of its distressed loan and receivables portfolio partly neutralises the concentration risk. COAM's relies on wholesale funding. This makes it more vulnerable to the rise in interest rates. Therefore, tight liquidity conditions in the domestic market may result in higher borrowing costs and may depress the company's profitability. RATING SENSITIVITIES Positive or negative rating action may result from a similar sovereign ratings change. Stronger explicit support from the government or COAM's stronger performance and capitalisation may lead to a ratings upgrade. Any significant dilution of COAM's core activities in the acquisition and management of NPAs may lead to a widening in notching. Significant changes to its strategic importance or a dilution of the state's shareholding to below 51% may result in COAM no longer being classified as a dependent public-sector entity and, therefore, no longer being credit-linked to the sovereign rating. 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 USD2bn Medium Term Note Programme affirmed at 'A-'; Outlook Stable Century Master Investment Co., Ltd USD600m 4.75% senior unsecured notes due 2018 affirmed at 'A-' Starway Assets Enterprises Inc. CNY2.5bn 4.1% senior unsecured notes due 2017 affirmed at 'A-' Charming Light Investments Ltd. USD600m 3.75% senior unsecured notes due 2019 affirmed at 'A-' USD400m 5% senior unsecured notes due 2024 affirmed at 'A-' Contact: Primary Analyst Terry Gao Director +852 2263 9972 Fitch (Hong Kong) Limited 2801, Tower Two, Lippo Centre 89 Queensway, Hong Kong Secondary Analyst Fernando Mayorga Managing Director +34 93 323 8400 Committee Chairperson Raffaele Carnevale Senior Director +39 02 87 90 87 203 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com. Additional information is available on www.fitchratings.com. Applicable criteria, 'Tax-Supported Rating Criteria', dated 14 August 2012 and 'Rating of Public Sector Entities Outside the United States', dated 4 March 2014, are available at www.fitchratings.com. Applicable Criteria and Related Research: Rating of Public-Sector Entities - Outside the United States Tax-Supported Rating Criteria Applicable Criteria and Related Research: Tax-Supported Rating Criteria here Rating of Public Sector Entities - Outside the United States - Effective from 4 March 2013 to 4 March 2014 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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