Fitch Rates ICBCIL Finance's Proposed USD Notes 'A(EXP)'

Fitch Ratings has assigned ICBCIL Finance Co. Limited's (A/Stable) proposed US dollar senior unsecured notes an expected 'A(EXP)' rating.

The proposed notes, which will be issued under ICBCIL Finance's medium-term note (MTN) programme, benefit from a keepwell and liquidity support deed and deed of asset purchase undertaking provided by ICBC Financial Leasing Co., Ltd. (ICBC Leasing, A/Stable).

The proposed notes will be listed on the Hong Kong stock exchange. The proceeds of the notes will be used to fund ordinary asset purchase activities, refinancing and other general corporate purposes.

The maturity structure will be finalised upon settlement. The final rating is contingent upon the receipt of final documents conforming to information already received. The MTN programme was first rated on 7 October 2015 and most recently affirmed on 27 May 2021. The programme was increased to USD20 billion in September 2019 from USD10 billion to support asset expansion.

Key Rating Drivers

The rating on the proposed notes reflects our assessment of an extremely high probability of support from ICBC Leasing to ICBCIL Finance, which is the primary treasury platform for ICBC Leasing's offshore leasing operations. ICBC Leasing is the wholly owned leasing arm of Industrial and Commercial Bank of China Limited (ICBC, A/Stable), which provides aviation, shipping, and equipment leasing services.

Fitch factors in an extremely high level of support from ICBC Leasing to ICBCIL Finance, as the two are highly integrated. ICBCIL Finance is owned by ICBC and not by ICBC Leasing, but it is highly integrated into ICBC Leasing's operations. In addition, ICBC has authorised and mandated ICBC Leasing to exercise full managerial and operational control over ICBCIL Finance. A default on the notes or by ICBCIL Finance would create significant reputational risk for ICBC Leasing and ICBC, in Fitch's view, as counterparties generally see ICBCIL Finance as an integral part of ICBC Leasing.

The keepwell and liquidity support deed commits ICBC Leasing to ensure that the issuer maintains sufficient levels of equity and liquidity to service its obligations to offshore bondholders at all times. The deed of asset purchase undertaking serves as an important mechanism to allow ICBC Leasing to provide foreign-currency liquidity to ICBCIL Finance in a timely manner.

ICBC Leasing's rating reflects our view of an extremely high level of support from ICBC, given its role as the bank's core subsidiary. The China Banking and Insurance Regulatory Commission's regulations, as well as ICBC Leasing's articles of association, require ICBC to provide liquidity and capital support to ICBC Leasing, if needed.

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to positive rating action/upgrade:

Positive rating action on ICBC Leasing appears unlikely unless there is a positive change in Fitch's view of the ratings for ICBC and ultimately the sovereign.

Factors that could, individually or collectively, lead to negative rating action/downgrade:

The expected rating on ICBCIL Finance's proposed notes will move in tandem with any changes to ICBC Leasing's rating, which is linked to the ratings of ICBC and the Chinese sovereign (A+/Stable).

The expected rating would also be downgraded if there is any sign of weakening in the linkage between ICBCIL Finance and ICBC Leasing, and in turn, between ICBC Leasing and ICBC. This would include a meaningful reduction in the parent's shareholdings or the parent losing its status and strong control as majority shareholder; changes in the regulatory obligation in ICBC Leasing's articles of association for ICBC to provide capital and liquidity support; or a significant change in ICBC Leasing's role in the group or evolution of strategies that makes it deviate significantly from ICBC's overall strategy or policy role.

Any change that severely weakens the recovery prospects of the bonds issued by the overseas platform, or any change in regulation that causes ICBC Leasing to encounter practical difficulties in exercising the keepwell and asset-purchase deeds or providing support to its overseas platform will also likely trigger a downgrade of the proposed notes.

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