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Amid rating downgrades across Chinese asset managers by Moody’s, China Huarong was downgraded to Ba1 from Baa3. Similarly, China Cinda AMC was cut to Baa1 from A3, China Orient AMC was cut to Baa2 from A3 and China Great Wall AMC to Baa3 from Baa1. Following the downgrade, Huarong is now a high yield issuer by Moody’s.
Regarding Huarong, the downgrade was due to Moody’s assessment of lower support from the Chinese government since it considers the government to prioritize resources to support SOEs with public policy mandates instead of companies exposed to commercial businesses. Barring any equity capital injection, it forecasts high strain on Huarong’s CET1 over the next 12-18 months, adding to “elevated impairment losses”. Besides, Huarong’s asset quality is expected to remain strained given its exposure to Chinese property developers.
Huarong’s dollar bonds continued to trade stable with its 4.25% Perp at 93.8, yielding 8.26%.
Regarding Cinda’s and Orient’s downgrades, Moody’s said that it assessed there would be lower support from the Chinese government, akin to Huarong. Great Wall’s downgrade was driven the rating agency’s assessment of “substantial weakness” in its governance and capital position pressure.