OREANDA-NEWS. Fitch Ratings has today assigned China-based ICBC Financial Leasing Co., Ltd. (ICBC Leasing) a Long-Term Issuer Default Rating (IDR) of 'A' and a Short-Term IDR of 'F1'. The Outlook is Stable.

Fitch has also assigned a Long-Term Issuer Default Rating (IDR) of 'A' to ICBCIL Finance Co., Ltd (ICBCIL Finance) with a Stable Outlook and an expected rating of 'A(EXP)' to senior unsecured notes issued by ICBCIL Finance.

ICBC Leasing was established by Industrial and Commercial Bank of China (ICBC; A/Stable) in 2007 as its wholly owned leasing arm. The company provides aviation, shipping, and equipment leasing services and is the largest lessor in China with total domestic assets of CNY163bn as of end-1H14. ICBC is the largest of China's state-owned commercial banks and the largest bank in the world by assets.

ICBCIL Finance functions as the exclusive treasury platform for the offshore leasing operations of ICBC Leasing, which had 28% of the assets it owns or controls outside China as at end-2014.
ICBCIL Finance's notes will have the benefit of a keepwell deed and deed of asset purchase undertaking provided by ICBC Leasing. The latter plans to use the proceeds of the note issue to fund the acquisition of assets in its ordinary course of trading.

KEY RATING DRIVERS - ICBC Leasing

ICBC Leasing's Long-Term IDR of 'A' reflects our view of an extremely high probability of support from ICBC. Fitch considers ICBC Leasing to be a core subsidiary of ICBC due to its strategic importance to ICBC and high level of integration with the group. Senior management at ICBC Leasing is appointed by ICBC and the parent has strong oversight over the subsidiary's strategic and financial planning.

The company's leasing services complement its parent's commercial bank offerings, and ICBC Leasing has benefited from the linkage in terms of its funding and customer referrals from ICBC. In addition, Fitch believes ICBC is increasingly using ICBC Leasing as a platform to expand internationally and to offer comprehensive financing to its banking customers.

ICBC has a history of providing financial support to ICBC Leasing; it provided additional equity investment on three occasions, mostly recently in January 2014. ICBC Leasing's articles of association were amended in December 2014, in line with regulatory requirements from the China Banking Regulatory Commission, to add a clause stating that ICBC would provide liquidity and capital support to the subsidiary should the need arise.

ICBC's Long-Term IDR of 'A' is driven by support from the China sovereign (A+/Stable). Given ICBC Leasing's role within ICBC and its size relative to the group, we expect sovereign support to be passed down to ICBC Leasing through ICBC, if needed. Despite rapid growth in recent years, ICBC Leasing still accounted for less than 1% of ICBC's CNY20.3trn assets as of end-1H14.

KEY RATING DRIVERS - ICBCIL FINANCE AND ITS NOTES

The ratings on ICBCIL Finance and its notes primarily reflect our assessment of an extremely high probability of support from ICBC Leasing to ICBCIL Finance. Although ICBCIL Finance is owned by ICBC and not by ICBC Leasing, it is highly integrated into ICBC Leasing's operations and ICBC has authorised and mandated ICBC Leasing to exercise full managerial and operational control over ICBCIL Finance. In Fitch's opinion, a default by the issuer would create enormous reputational risk for ICBC Leasing and its parent.

The keepwell deed commits ICBC Leasing to ensure that the offshore guarantor and issuer maintain sufficient levels of equity and liquidity to service their obligations to offshore bondholders at all times. Under the deed of asset purchase undertaking, upon the occurrence of a triggering event, ICBC Leasing is required to purchase ICBCIL Finance's assets at a price high enough to meet any outstanding debt obligations under the note issuance. The triggering event refers to the situation in which ICBCIL Finance does not have sufficient liquidity to meet its payment obligations or an event of default.

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 does not require approval from the State Administration of Foreign Exchange for these foreign currency transfers because buying assets for leasing purposes is a part of ICBC Leasing's operating activities sanctioned by the relevant authorities, including the China Banking Regulatory Commission.

There could be practical difficulties in enforcing the keepwell deed and deed of asset purchase undertaking, which is not as strong as a guarantee. Nevertheless, the agreements at the parent level suggest a very strong propensity for ICBC Leasing to support ICBCIL Finance, if required.

RATING SENSITIVITIES - ICBC LEASING, ICBCIL FINANCE AND ITS NOTES

Any signs of a decrease in the probability of support for ICBC Leasing from its parent would lead to a downgrade of the company's ratings. Any change in ICBC's rating, which reflects the perceived willingness or ability of China's government to support the bank in a full and timely manner, is likely to affect ICBC Leasing's rating in the same magnitude.

The ratings on ICBCIL Finance and its notes are directly correlated to any material change in the willingness or ability of ICBC Leasing to support ICBCIL Finance, if required. Likewise, any material change in the perceived willingness or ability of China's government to support ICBC and ICBC Leasing in a full and timely manner, would affect the ratings on the issuer and its notes.