CHINA INTERNATIONAL CAPITAL CORPORATION LIMITED
Fitch Ratings has affirmed the Long-Term Issuer Default Ratings (IDRs) of
The Outlook is Stable. Fitch has also affirmed
Fitch has also affirmed the 'BBB+' ratings on the medium-term note (MTN) programme and the notes issued by CICC Hong Kong Finance 2016
CICC,
Key Rating Drivers
Support-Driven Ratings: CICC's IDRs are underpinned by Fitch's expectation that extraordinary support would be forthcoming from its largest shareholder, Central Huijin, in the event of stress. This reflects CICC's key role in undertaking social and political functions for the parent via its leading investment banking franchise, the shareholder's controlling ownership and strong oversight of CICC's management, and the reputational risks to the parent if CICC were to default.
The rating also takes into consideration the company's linkage with the Chinese sovereign (A+/Stable), which we believe to be the ultimate source of extraordinary support to CICC. The Stable Outlook reflects our expectation that the Central Huijin will continue to be CICC's largest shareholder given its important role in cross-border financing and assisting in the country's capital-market development, and CICC's linkage with parent as well as the high likelihood of extraordinary support from Central Huijin, if needed, will remain intact in the medium term.
Stable SROE: The sector risk operating environment (SROE) score remains at 'bbb-'/stable.
The SROE score is above the implied 'bb' category score. We believe
High Policy Alignment: We expect CCIC to sustain its sound performance, with the authorities aiming at achieving greater capital efficiency and financial system stability. CICC has strong investment-banking capability and a record of supporting capital-market development as well as the government's objective to promote direct financing.
Satisfactory Return Profile: We expect CICC to sustain stronger profitability than peers, supported by its strong investment-banking franchise and lower reliance on the brokerage business. CICC has delivered returns higher than the sector over the past years. Its profitability, measured by operating income/average equity, was annualised at 10.8% in 1Q23, up from 9.9% in 2022. The increase was due mainly to fair value gains from CICC's proprietary trading positions, as capital market sentiment and the economy improved after
Leverage Above Peers: We view CCIC's leverage as commensurate with its more diversified business model and higher balance-sheet usage activities than peers, even though its leverage has generally been higher than the sector average. Relevant risks are controlled within manageable levels in CICC's developed risk framework, and mitigated by its adequate capital base in absolute terms.
Reliance on Wholesale Funding: CICC is exposed to credit market volatility in a similar way to peers, as it relies on wholesale funding and high use of repos for short-term funding. However, the risk is reduced by its sufficient liquidity coverage buffers and adequate underlying collateral against the repos, mainly in the form of government bonds or corporate bonds with adequate credit quality. Our analysis of its funding and liquidity profile also takes into consideration that CICC would benefit from its shareholder background when securing financing in the market.
Parent Underpins Subsidiary Rating: The ratings on
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
Any change to the Chinese sovereign's rating that would affect Fitch's assessment of Central Huijin's credit profile, is likely to affect the ratings on CICC and its offshore subsidiary to the same magnitude.
IDRs -
A widening of the notching from the Chinese sovereign rating would be triggered by a significant weakening in CICC's role as a conduit to support financial-sector reform and the development and stability of
SENIOR DEBT - CICC
The ratings on the MTN programme and notes issued under the programme are directly linked to CICC's propensity and ability to support the guarantor or issuer. The ratings on the notes will be downgraded following a similar rating action on
Any change in Fitch's view on the effectiveness of the deed of guarantee given by
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
IDRs -
CICC's ratings could be upgraded if Fitch believes it has become more systemically important to the Chinese government - although this seems remote relative to the size of the large state-owned banks - or if the entity undertakes more significant policy roles.
A rating upgrade on
SENIOR DEBT - CICC
The ratings on the MTN programme and the notes issued under the programme will be upgraded if there is a similar rating action on
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 '
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.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This 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. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
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