Research Update: China Huarong Asset Management Co. Ltd. Downgraded To 'BBB+' Due To Elevated Leverage; Huarong Int'l Ratings Affirmed

We expect China Huarong's leverage to continue to exceed 6.5x, our threshold for a lower rating, over the next two years. This takes into account debt-fueled growth over the past two years, falling profitability, and slower-than-expected capital replenishment plans. However, we see the distressed asset manager's debt rationing, de-risking initiatives, and tighter controls on its overseas operations as positive developments. We have revised the group status on China Huarong's Hong Kong arm, Huarong International, to being a core subsidiary. We are lowering the issuer credit ratings on China Huarong to 'BBB+/A-2' from 'A-/A-2'. The outlook on the long-term rating is stable. At the same time, we are revising our outlook on Huarong International, to stable from negative. In addition, we

...+ We expect China Huarong's leverage to continue to exceed 6.5x, our threshold for a lower rating, over the next two years. This takes into account debt-fueled growth over the past two years, falling profitability, and slower-than-expected capital replenishment plans. + However, we see the distressed asset manager's debt rationing, de-risking initiatives, and tighter controls on its overseas operations as positive developments. We have revised the group status on China Huarong's Hong Kong arm, Huarong International, to being a core subsidiary. + We are lowering the issuer credit ratings on China Huarong to '###+/A-2' from 'A-/A-2'. The outlook on the long-term rating is stable. At the same time, we are revising our outlook on Huarong International, to stable from negative. In addition, we are affirming our '###+/A-2' issuer credit ratings on Huarong International. + Our stable outlooks on China Huarong and Huarong International reflect our view the group will maintain its very high likelihood...

Research Update