Fitch Ratings has maintained the Rating Watch Evolving (RWE) on the ratings on China Huarong Financial Leasing Co., Ltd. (Huarong Financial Leasing) and its subsidiary as follows.
Huarong Financial Leasing's Long-Term Issuer Default Rating (IDR) of 'BBB-' and Shareholder Support Rating (SSR) of 'bbb-'.
Huarong Leasing Management Hong Kong Company Limited's (Huarong Leasing Management HK) Long-Term IDR of 'BBB-' and the rating on its USD1 billion medium-term note (MTN) programme of 'BBB-'.
Resolution of the RWE will occur upon further development of China Huarong Asset Management Co., Ltd.'s (China Huarong, BBB+/Stable) plan to sell Huarong Financial Leasing, which may take place more than six months in the future. China Huarong announced its plan to dispose of Huarong Financial Leasing in November 2021, but there have not been material developments in the plan since then. Huarong Financial Leasing's ratings have been on RWE since August 2021.
Key Rating Drivers
The RWE on Huarong Financial Leasing's IDR reflects the uncertainly around the sale plan and our view that Huarong Financial Leasing's rating could be upgraded, downgraded or remain the same after we reassess its credit profile when a new core shareholder is identified.
The company's ratings remain underpinned by our expectation of support from China Huarong and take into consideration the parent's obligation to provide capital and liquidity support, as required by the China Banking and Insurance Regulatory Commission and Huarong Financial Leasing's articles of association. However, China Huarong's plan to sell Huarong Financial Leasing suggests the subsidiary's strategic importance has decreased in the group's restructuring plan, resulting in the parent's weaker propensity to support.
Huarong Financial Leasing's SSR of 'bbb-' is aligned with its IDR and indicates the minimum level to which its IDR could fall if Fitch does not change its view on potential support from China Huarong. An SSR of 'bbb-' indicates a high probability of support being forthcoming.
Fitch assesses Huarong Leasing Management HK as highly integrated with Huarong Financial Leasing's core activities. The ultimate parent, China Huarong, manages Huarong Leasing Management HK as an integral part of Huarong Financial Leasing. A default by Huarong Leasing Management HK would create high reputational risk for Huarong Financial Leasing and China Huarong, as counterparties generally see Huarong Leasing Management HK as an integral part of the group.
The rating on Huarong Leasing Management HK's MTN programme is in line with its IDR of 'BBB-', as the notes issued under the programme constitute direct, unconditional, unsubordinated and unsecured obligations of the company.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
The ratings on Huarong Financial Leasing and Huarong Leasing Management HK, including the IDRs, SSR and rating on the MTN programme, remain linked to the rating of China Huarong until the new shareholder is identified. An upgrade of China Huarong's rating could lead to an upgrade of the ratings of Huarong Financial Leasing and Huarong Leasing Management HK if our assessment of China Huarong's propensity and ability to support remains unchanged.
The introduction of a new core shareholder rated higher than China Huarong could also be rating positive.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Huarong Financial Leasing's IDR and SSR are underpinned by institutional support from China Huarong so negative changes in China Huarong's rating could lead to negative rating action for Huarong Financial Leasing of at least the same magnitude.
Huarong Financial Leasing's IDR and SSR are also susceptible to any sign of weakening in China Huarong's support propensity, such as changes in the regulatory obligation for China Huarong to provide capital and liquidity support or a significant reduction in ownership. A sale to a key shareholder with a lower rating would lead to a downgrade.
If institutional support cannot be relied on, or the rating based on institutional support falls below Huarong Financial Leasing's standalone credit profile, the ratings would be reassessed based on its standalone credit profile, which is multiple notches below the IDR because of the modest franchise, weak profitability and high leverage.
Changes in Huarong Financial Leasing's rating would affect Huarong Leasing Management HK's rating by the same magnitude. Any major restructuring that adversely affects the role and importance of Huarong Leasing Management HK to Huarong Financial Leasing could also lead to wider notching between their ratings. The rating on the MTN programme will move in tandem with Huarong Leasing Management HK's IDR.
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.
Public Ratings with Credit Linkage to other ratings
The ratings on Huarong Financial Leasing and Huarong Leasing Management HK are driven by support from China Huarong.
ESG Considerations
Huarong Financial Leasing has an ESG Relevance Score of '4' for Management Strategy due to China Huarong's strategy of focusing on distressed-asset management and divesting non-core businesses. Risks of deviation from or failure of the strategy have a negative impact on China Huarong's credit profile, and is relevant to Huarong Financial Leasing's ratings in conjunction with other factors
Huarong Financial Leasing has an ESG Relevance Score of '4' for Governance Structure, which reflects China Huarong's recapitalisation and introduction of new strategic shareholders. The governance under the new shareholding structure may have a positive or negative impact on China Huarong's credit profile, and is relevant to Huarong Financial Leasing's ratings in conjunction with other factors.
Huarong Financial Leasing has an ESG Relevance Score of '4' for Financial Transparency due to limited transparency over China Huarong's asset quality and the asset quality of China's leasing sector in general, which has a negative impact on China Huarong's and Huarong Financial Leasing's credit profiles, and is relevant to the ratings 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.
RATING ACTIONS
Entity / Debt
Rating
Prior
China Huarong Financial Leasing Co., Ltd.
LT IDR
BBB-
Rating Watch Maintained
BBB-
Shareholder Support
bbb-
Rating Watch Maintained
bbb-
Huarong Leasing Management Hong Kong Company Limited
LT IDR
BBB-
Rating Watch Maintained
BBB-
senior unsecured
LT
BBB-
Rating Watch Maintained
BBB-
Page
of 1
VIEW ADDITIONAL RATING DETAILS
Additional information is available on www.fitchratings.com
PARTICIPATION STATUS
The rated entity (and/or its agents) or, in the case of structured finance, one or more of the transaction parties participated in the rating process except that the following issuer(s), if any, did not participate in the rating process, or provide additional information, beyond the issuer's available public disclosure.
CHINA BANKING CORPORATION 
