Fitch Ratings-Taipei-28 March 2017: Fitch Ratings has assigned ICBCIL Finance Co. Ltd.‘s (A/Stable) proposed long-term senior unsecured US dollar notes an expected ’A(EXP)’ rating. ICBCIL Finance functions as the exclusive treasury platform for the offshore leasing operations of ICBC Financial Leasing Co. Ltd. (ICBC Leasing).

The notes will be issued under ICBCIL Finance’s existing medium-term note (MTN) programme and will have the benefit of a keepwell deed and deed of asset purchase undertaking provided by ICBC Leasing. ICBCIL Finance’s USD10 billion MTN programme was first rated by Fitch on 7 October 2015 and subsequently affirmed on 23 February 2017. The size of the programme was increased to USD10 billion on 28 March 2017 from USD5 billion to support the company’s asset expansion.

The notes will be listed on the Hong Kong Stock Exchange and the proceeds of the proposed notes will be used to fund the acquisition of assets in the ordinary course of trading and other general corporate purposes. The maturity structure will be finalised upon settlement. The final ratings on the proposed notes are contingent upon the receipt of final documents conforming to information already received.

ICBC Leasing is the wholly owned leasing arm of Industrial and Commercial Bank of China (ICBC; A/Stable). The company provides aviation, shipping, and equipment leasing services and is the largest lessor in China with total domestic assets of CNY164 billion as of end-2016. ICBC is the largest of China’s state-owned commercial banks and the largest bank in the world by assets.

KEY RATING DRIVERS

The rating on the notes issued by ICBCIL Finance primarily reflects 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.

The keepwell 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. 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
Any changes to ratings on the notes issued under the programme will be 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. Should the keepwell deed and deed of asset purchase undertaking no longer be effective, then the rating on the programme could be downgraded.