Fitch Ratings has affirmed ABC International Holdings Limited's (ABCI) Long-Term Issuer Default Rating (IDR) at 'A'.

The Outlook is Stable. We have also affirmed its Short-Term IDR at 'F1+' and Shareholder Support Rating (SSR) at 'a'.

ABCI, domiciled in Hong Kong, is an integrated platform that houses Agricultural Bank of China Limited's (ABC, A/Stable) offshore investment-banking and investment-related businesses, including stock brokerage, margin financing, corporate finance and underwriting, investment, asset management and advisory.

We have also affirmed the ratings on Inventive Global Investments Limited's USD3.5 billion medium-term note programme (guaranteed by ABC Hong Kong branch) at 'A' and 'F1+'. Another USD3.5 billion medium-term note programme under Inventive Global Investments that is guaranteed by ABCI was also affirmed at 'A'.

Key Rating Drivers

Shareholder Support: ABCI's Long-Term IDR is driven by Fitch's belief that extraordinary support from ABC would be forthcoming, in the event of stress, due to the strong ties between the two entities. ABCI's ratings are equalised with those of ABC as we regard ABCI as a core subsidiary of ABC due to its unique role in the group in operating the parent's offshore capital market service and investment business.

The Stable Outlook is in line with that of its parent and reflects our expectation that ABCI's role as a core subsidiary and the probability that it would receive extraordinary support from ABC will remain unchanged in the next 12-18 months. ABCI's Short-Term IDR is mapped to 'F1+', the higher of the two options for its Long-Term IDR, reflecting our expectations that support is more certain in the near term.

Highly Integrated with Parent: ABCI's management and strategy, operations and business development are highly integrated with that of its parent. ABCI is a wholly owned subsidiary of ABC, shares a common brand name and enjoys strong synergies with the parent group by taking advantage of ABC's customers and network. We believe there would be substantial reputational damage to the parent should ABCI default.

Strong Funding Support: We expect strong support from the parent, evident from the parent's provision of capital and liquidity support in the form of credit lines through its Hong Kong branch, and plans for capital injections to further support the subsidiary's operations in the medium term.

Slow Capital-Market Recovery in Hong Kong: Hong Kong, as the main offshore financial centre for China, saw a substantial decline in capital-raising activities in 2022. IPO fund-raising and new issuance of G3 (US dollar, yen or euro) bonds decreased by 68% and 54%, respectively. We expect corporate refinancing demand to return, but we believe capital-market recovery will be slow, as China's slowing economy, still-high US dollar federal fund rate and ongoing Chinese property and local government debt overhang will continue to have an adverse impact on capital-market sentiment and investor appetite.

Modest Standalone Credit Profile: Fitch considers ABCI's standalone credit profile to be sub-investment grade given its modest franchise in a competitive industry, business volatility, reliance on wholesale funding and exposure to risks from its large investment portfolio, which is sensitive to capital-market movements and could undermine performance in a market downturn.

We expect ABCI's operating performance to remain volatile over economic cycles and its recent earnings to be affected by the weak capital market in Hong Kong and marked-to-market revaluations in its investment portfolio.

RATING SENSITIVITIES

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

A rating downgrade for ABCI could be triggered by a weakening in the linkage with its parent, which could result from significant dilution of ABC's stake in ABCI or a reduction in ABCI's strategic role in carrying out ABC's securities and related financial services. Any indication of ABC not providing funding support to ABCI if the subsidiary runs into liquidity or refinancing issues would also put downward pressure on ABCI's ratings.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

A rating upgrade is unlikely without a similar rating action for ABC as the subsidiary's ratings are equalised with those of the parent.

DEBT AND OTHER INSTRUMENT RATINGS: KEY RATING DRIVERS

The ratings on the two medium-term note programmes under Inventive Global Investments are in line with the rating on ABC as Fitch expects the SPV to receive strong support from its ultimate mainland China parent in the event of repayment strain.

DEBT AND OTHER INSTRUMENT RATINGS: RATING SENSITIVITIES

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade:

A downgrade of the IDRs on ABC or ABCI would lead to negative rating action on the medium-term note programmes.

Any change in Fitch's view on the effectiveness of the deed of guarantee given by ABC Hong Kong branch or ABCI may also result in a downgrade of the ratings on the programmes.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade:

An upgrade of ABC's IDR would lead to positive rating action on the ratings of the medium-term note programmes under Inventive Global Investments.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

Public Ratings with Credit Linkage to other ratings

The IDRs and SSR of ABCI are linked to ABC's ratings.

ESG Considerations

ABCI has an ESG Relevance Score of '4' for Financial Transparency as the disclosure of risks from its investment portfolio is considered less transparent, which has a negative impact on the credit profile, and is relevant to the rating in conjunction with other factors.

The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.

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