Fitch Ratings has affirmed ABC International Holdings Limited's (ABCI) Long-Term Issuer Default Rating (IDR) at 'A'.

The Outlook is Stable. We have also affirmed its Short-Term IDR at 'F1+'. Fitch has also assigned a Shareholder Support Rating (SSR) of 'a' to ABCI, in line with our updated Non-Bank Financial Institutions Criteria, dated 31 January 2022.

ABCI, domiciled in Hong Kong, is an integrated platform that houses Agricultural Bank of China Limited's (ABC, A/Stable/bbb-) offshore investment-banking and investment businesses. ABCI operates the stock brokerage, margin financing, corporate finance and underwriting, investment, asset management and advisory businesses.

We have also affirmed the ratings on Inventive Global Investments Limited's USD3.5 billion medium-term note programme (guaranteed by ABC Hong Kong Branch) at 'A' and 'F1+'. Another USD3.5 billion medium-term note programme under Inventive Global Investments that is guaranteed by ABCI was also affirmed at 'A'.

Key Rating Drivers

IDRS

ABCI's Long-Term IDR is driven by Fitch's belief that extraordinary support from ABC would be forthcoming, in the event of stress, due to the strong ties between the two entities. Fitch considers ABCI a core subsidiary of ABC due to its unique role in the group to carry out ABC's offshore investment-banking and investment operations, as well as the substantial reputational damage to the parent should ABCI default. In addition, ABCI is wholly owned by ABC and has a high level of management and operation integration with the group. As such, ABCI's ratings are equalised with those of ABC.

ABCI shares the parent group's brand name, and enjoys strong synergies with the parent group through leveraging ABC's customers and network to expand its business. Support from the parent has been strong, which is evident in the parent's provision of capital and liquidity support in the form of credit lines provided through ABC's Hong Kong branch, with plans to continue to inject capital into ABCI to strengthen its operation in the coming years.

The Stable Outlook on the Long-Term IDR reflects our expectation that ABCI's role as a core subsidiary and the probability it will receive extraordinary support from ABC remain unchanged in the next 12-18 months.

ABCI's Short-Term IDR is mapped to 'F1+', the higher of the two options for its Long-Term IDR, reflecting our expectations that support is more certain in the near term.

Fitch considers ABCI's Standalone Credit Profile to be sub-investment grade in light of its modest franchise in a competitive industry, business volatility, reliance on wholesale funding, and exposure to risks from its large investment portfolio, which is sensitive to capital-market movements and could undermine performance in market downturns.

ESG - Governance: ABCI has an ESG Relevance Score of '4' for Financial Transparency, as the disclosure of risks from its investment portfolio is considered less transparent, which has a negative impact on the credit profile, and is relevant to the rating in conjunction with other factors. ABCI's ESG Relevance Score for Governance Structure has been revised to '3' from '4', in line with that of ABC, given the positive regulatory developments on financial reform and governance standards in recent years.

Rating Sensitivities

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

A rating downgrade for ABCI could be triggered by a weakening in the linkage with the parent, which could result from significant dilution of ABC's stake in ABCI or a reduction of ABCI's strategic role in carrying out ABC's securities and related financial services. Any indication of ABC not providing funding support to ABCI if the latter runs into liquidity or refinancing issues would also put downward pressure on ABCI's ratings.

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

ABCI's rating is equalised with those on ABC, so a rating upgrade is unlikely without a similar rating action for ABC.

OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS

SENIOR DEBT

The ratings on the two medium-term note programmes under Inventive Global Investments are in line with the rating on ABC as Fitch expects the SPV to receive strong support from its ultimate mainland parent in the event of repayment strain.

OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES

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

A downgrade of the IDRs on ABC or ABCI would lead to negative rating action on the medium-term note programmes.

Any change in Fitch's view on the effectiveness of the deed of guarantee given by ABC Hong Kong branch or ABCI may also result in a downgrade of the ratings on the programmes.

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

An upgrade of ABC's IDR would lead to positive rating action on the ratings of the medium-term note programmes under Inventive Global Investments.

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

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

ABC International Holdings Limited has an ESG Relevance Score of '4' for Financial Transparency as the disclosure of risks from its investment portfolio is considered less transparent, which has a negative impact on the credit profile, and is relevant to the rating in conjunction with other factors. 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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