Chinese non-listed financial groups target overseas ratings

Companies such as China Orient Asset Management and Bank of Shanghai are looking for credit ratings from global rating agencies, in an effort to convince investors of their credibility during offshore fundraisings.
Fitch and Standard & Poor’s on Friday assigned COAM A- and BBB+/A-2, respectively, with a stable outlook.
Fitch and Standard & Poor’s on Friday assigned COAM A- and BBB+/A-2, respectively, with a stable outlook.

If you want to sell something, it helps if you have a shop window. 

Beijing-based financial company China Orient Asset Management (COAM) has gained its first issuer credit ratings from global rating agencies.

Although China’s policy banks and large commercial banks have sought credit ratings from global agencies before, it is rare for non-listed financial firms.

However, the move by COAM, say analysts, could be a common feature in coming months as more non-listed Chinese financial institutions seek ratings before tapping offshore capital markets. Securing such ratings allows foreign investors to better understand the company and increase the chances of the group raising funds overseas. 

Bank of Shanghai, which is on the way for a Hong Kong IPO to raise $2 billion, will for the first time secure a rating from Moody’s Investor Services, according to a person close to the situation. The rating will be set at BBB-.

“Chinese financial issuers would like to convince overseas investors in their credit profile with such ratings,” says a Hong Kong-based researcher familiar with the situation. “It will make them easier to raise capital from the offshore markets.”

COAM is believed to be the first of China’s four asset management companies to secure issuer ratings from global rating agencies. Fitch and Standard & Poor’s on Friday assigned COAM A- and BBB+/A-2, respectively, with a stable outlook.

The ratings coincide with the company’s proposed offshore US dollar  senior unsecured notes. The notes, to be issued by Century Master Investment – which started to meet investors on September 9 - would be unconditionally and irrevocably guaranteed by China Orient Asset Management (International), a Hong Kong-based holding company of COAM.

Century Master is a wholly-owned subsidiary of COAMI. Fitch assigned the notes an expected A-(EXP).

ABC International, BOC International, Credit Suisse, Standard Chartered and UBS have been hired to arrange the notes issuance, according to sources.

Chinese banks broadly have suffered fundraising difficulties due to a slowdown of growth rate in the country’s economy and lower expectation of investors in banks’ profit ability.

During the past year, the large banks were trading at their price to book valuation in the secondary market, while some middle-and small-sized banks were trading at 0.6-0.8 times P/B, according to analyst reports. Some banks had traded at an average 3-4 times P/B.

The tepid investor interest has delayed China Everbright Bank’s $2 billion Hong Kong listing since it submitted list application in May. Meanwhile,   planned floats this year by other banks, including China Guangfa Bank, Bank of Shanghai, Huishang Bank and Bank of Chongqing, remain in limbo.

Also, the stricter capital requirements for banks make life more difficult, especially for those smaller-sized non-listed lenders who are relatively unknown by investors.

“The ratings will help overseas markets understand the banks better, and increase credit for their offshore fundraising efforts,” said a Hong Kong-based banker of a US investment bank.

S&P and Fitch believe that the COAM’s notes benefit from a very high likelihood of strong government support because the company is 100% owned by China’s Ministry of Finance.

S&P sees the COAM’s stand-alone credit profile of ‘bb’ reflecting a weaker financial profile of the company. However, “the stable outlook on COAM reflects our view that the finance company will retain a very important policy role and also its market position in nonperforming asset management, and our current view of its financial risk profile,” says Harry Hu, a Sydney-based credit analyst with S&P.

China’s big four asset management companies were all rated AAA by major domestic rating companies. Bank of Shanghai was rated AAA by China Lianhe Credit Rating and Shanghai Brilliance Rating & Investors Service, two domestic rating service providers. 

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