Fitch Ratings has assigned Huarong Leasing Management Hong Kong Company Limited's (A-/Stable) proposed senior unsecured US dollar notes an expected rating of 'A-(EXP)'.
The proposed notes will be issued under the company's USD1 billion medium-term note (MTN) programme.
Huarong Leasing Management HK is the only offshore platform of China Huarong Financial Leasing Co., Ltd. (Huarong Financial Leasing, A-/Stable), which is a 79.9%-owned subsidiary of China Huarong Asset Management Co., Ltd. (China Huarong, A/Stable). Fitch assesses Huarong Financial Leasing to be strategically important to China Huarong as it provides leasing services to the parent's customers.
The proposed notes, to be listed on the Hong Kong Stock Exchange, will constitute direct, unconditional, unsubordinated and unsecured obligations of Huarong Leasing Management HK, and will rank pari passu with all other unsecured and unsubordinated obligations. The proposed notes will benefit from a keepwell and asset purchase deed provided by Huarong Financial Leasing, and the proceeds will be used for general corporate purposes.
The final rating is contingent upon the receipt of final documents conforming to the information already received. Fitch first rated Huarong Leasing Management HK's MTN programme at 'A-' on 16 June 2020.
KEY RATING DRIVERS
The expected rating on the proposed senior notes is in line with Huarong Leasing Management HK's Long-Term Issuer Default Rating (IDR) of 'A-'. This reflects our expectation of a high probability of support from China Huarong to Huarong Leasing Management HK through Huarong Financial Leasing.
We regard Huarong Leasing Management HK as highly integrated with Huarong Financial Leasing's core activities. We also believe a default of the notes or Huarong Leasing Management HK would create significant reputational risk for Huarong Financial Leasing and China Huarong, as counterparties generally see Huarong Leasing Management HK as an integral part of the group.
We see the keepwell agreement and asset purchase deed as a demonstration of Huarong Financial Leasing's strong propensity to provide support to Huarong Leasing Management HK, but there could be practical difficulties in enforcing the keepwell and asset purchase deed, which are not as strong as a guarantee. The asset repurchase agreements serve as an important mechanism to allow Huarong Financial Leasing to provide foreign-currency liquidity to Huarong Leasing Management HK in a timely manner without approval from the State Administration of Foreign Exchange.
Huarong Financial Leasing's rating reflects our view of a high level of support from its parent, China Huarong, because of its strategic importance in providing leasing services to the parent's customers. China Banking and Insurance Regulatory Commission regulations, as well as Huarong Financial Leasing's articles of association, also require China Huarong to provide liquidity and capital support, if needed.
For information on the drivers and sensitivities of Huarong Financial Leasing's rating, see 'Fitch Affirms Ratings on Leasing Subsidiaries of Chinese Financial Institutions', published on 13 January 2020, at www.fitchratings.com/site/pr/10107566.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
The rating on the proposed notes is equalised with that of the company's parent, Huarong Financial Leasing. A rating upgrade is unlikely without similar rating action on Huarong Financial Leasing, which in turn is sensitive to its role in the group and positive rating action on China Huarong.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
The rating of the proposed notes will move in tandem with any change in the ratings of China Huarong and Huarong Financial Leasing and are sensitive to a change in Fitch's assumption around China Huarong and Huarong Financial Leasing's propensity or ability to support Huarong Leasing Management HK. The rating may be downgraded upon any weakening in Huarong Leasing Management HK's linkage with Huarong Financial Leasing or a reduced importance to the group. This could be triggered by Huarong Leasing Management HK's role as an offshore operating and financing platform becoming less important or being replaced by another entity within the group.
Any significant adverse change in China's regulations that restricts Huarong Financial Leasing's ability to provide liquidity support to Huarong Leasing Management HK on a timely basis through asset purchase deeds or other means would also lead to a downgrade of the rating on the proposed notes.
Any significant change in the perceived willingness or ability of China's sovereign (A+/Stable) to support China Huarong and Huarong Financial Leasing, or any significant change in the perceived willingness or ability of China Huarong to support Huarong Financial Leasing, in a full and timely manner is likely to affect the rating on the proposed notes to the same magnitude.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit [https://www.fitchratings.com/site/re/10111579]
DATE OF RELEVANT COMMITTEE
16 July 2020
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 rating on the proposed notes is driven by the institutional support from Huarong Financial Leasing, whose IDR is underpinned by the support from China Huarong and the Chinese sovereign.
RATING ACTIONS
ENTITY/DEBT RATING
Huarong Leasing Management Hong Kong Company Limited
senior unsecured
LT A-(EXP) Expected Rating
VIEW ADDITIONAL RATING DETAILS
Additional information is available on www.fitchratings.com
CHINA BANKING CORPORATION 
