Fitch Assigns 'A+(EXP)' to CDB Leasing's MTN Notes

KGI Financial Holding

04/03/2019 03:09

(The following statement was released by the rating agency)


Fitch Ratings-Taipei-March 03: Fitch Ratings has assigned an expected rating of 
'A+(EXP)' to China Development Bank Financial Leasing Co., Ltd.'s (CDB Leasing, 
A+/Stable) proposed senior unsecured US dollar notes, which will be issued by 
CDBL Funding 2 under CDB Leasing's USD3 billion medium-term note (MTN) 
programme.

CDBL Funding 2 is an offshore SPV established by Metro Excel, the core operating 
platform directly wholly owned by CDB Leasing for its overseas non-aircraft 
leasing business domiciled in Hong Kong. The ultimate parent of both Metro Excel 
and CDB Leasing is China Development Bank (CDB, A+/Stable). 

The proposed notes, to be listed on the Hong Kong Stock Exchange, will be 
supported by a guarantee from Metro Excel and benefit from a keepwell and 
asset-purchase deed undertaking by CDB Leasing. Proceeds will be used for 
working capital and general corporate purposes. The maturity structure will be 
finalised upon settlement. 

The final rating is contingent upon the receipt of final documents conforming to 
the information already received. Fitch first rated CDB Leasing's MTN programme 
'A+' on 18 July 2017 and the rating was recently affirmed on 30 January 2019. 

KEY RATING DRIVERS 

The expected rating on the proposed notes is driven by our assessment of an 
extremely high probability of support from CDB Leasing and its ultimate parent 
bank, CDB, to the notes. The guaranteed notes will represent Metro Excel's 
direct, unconditional, unsubordinated and unsecured obligations and rank at 
least pari passu with all its other current and future direct, unsecured, 
unguaranteed and unsubordinated debt. 

Metro Excel is highly integrated with CDB Leasing and we expect an extremely 
high level of support from its parent. We believe a default of the notes or 
Metro Excel would create significant reputational risk for CDB Leasing and its 
ultimate parent, CDB, as counterparties generally see Metro Excel as an integral 
part of CDB Leasing.

The keepwell and asset-purchase deeds commit CDB Leasing to ensure CDBL Funding 
2 and Metro Excel have sufficient liquidity to meet their obligations under the 
guaranteed notes and remain solvent and going concerns at all times. The 
repurchase agreement serves as an important mechanism to allow CDB Leasing to 
provide foreign-currency liquidity to Metro Excel and the keepwell deed suggests 
a strong propensity for CDB Leasing to support Metro Excel, if required.

CDB Leasing's ratings reflect our view of an extremely high level of support 
from CDB based on the parent's legal obligation as a founder, which is stated in 
the subsidiary's articles of association and required by the China Banking and 
Insurance Regulatory Commission. This view also reflects CDB Leasing's strategic 
importance and high level of integration with CDB as the bank's core subsidiary. 
CDB Leasing's Issuer Default Ratings were first assigned on 10 July 2014 and 
last affirmed on 30 January 2019. For more information on the rating action, see 
Fitch Affirms Ratings 
for Chinese Bank-Leasing Subsidiaries /a .

RATING SENSITIVITIES

The rating on CDBL Funding 2's proposed guaranteed notes is directly correlated 
with significant changes in CDB Leasing's and CDB's willingness or ability to 
support Metro Excel and CDBL Funding 2, if required. Any significant changes in 
the perceived willingness or ability of China's sovereign (A+/Stable) to support 
CDB and CDB Leasing in a full and timely manner is also likely to affect the 
rating on the proposed guaranteed notes to the same magnitude.

Any change in regulation that causes CDB Leasing to encounter practical 
difficulties in exercising the keepwell and asset-purchase deeds to support 
Metro Excel will also likely trigger a downgrade of the notes. 

 

Contact: 

Primary Analyst

Katie Chen

Director

+886 2 8175 7614

Fitch Australia Pty Ltd, Taiwan Branch

Suite 1306, 13/F

205 Tun Hwa North Road 

Taipei 105, Taiwan

Secondary Analyst

Shirley Hsu 

Associate Director

+886 2 8175 7606 

Committee Chairperson 

Mark Young

Managing Director

+44 (0) 20 3530 1318

Date of Relevant Rating Committee: 29 January 2019

Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: 
wailun.wan@thefitchgroup.com.

Additional information is available on www.fitchratings.com

Applicable Criteria 

Non-Bank Financial Institutions Rating Criteria (pub. 12 Oct 2018)

https://www.fitchratings.com/site/re/10044407

Additional Disclosures 

Solicitation Status 

https://www.fitchratings.com/site/pr/10062036#solicitation

Endorsement Policy 

https://www.fitchratings.com/regulatory

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