China Cinda outlook revised to stable, IDRs affirmed at 'A-' by Fitch Ratings

Investing.com -- Fitch Ratings has revised the outlook for China Cinda Asset Management Co., Ltd. from Negative to Stable and affirmed its Issuer Default Ratings (IDRs) at 'A-'. The Government Support Rating (GSR) has been maintained at 'a-'. The outlook for China Cinda (HK) Holdings Company Limited, a subsidiary of China Cinda, has also been revised to Stable from Negative, with its IDRs confirmed at 'A-' and Shareholder Support Rating affirmed at 'a-'.

Fitch's revision of China Cinda's outlook reflects the expectation that the company will continue to receive extraordinary support, despite the recent downgrade of China's rating to 'A'/Stable from 'A+'/Negative on April 3, 2025. The agency anticipates that China Cinda will assume a more significant policy role due to the country's economic downturn, given its strong market position and expertise in distressed-asset management.

China Cinda's policy importance is expected to increase as it supports financial stability amid China's economic challenges. The company is highly engaged in government initiatives to support vulnerable sectors, such as local government financing vehicles and property developers, and in the acquisition of non-performing and other distressed assets from banks. As China's largest distressed-asset manager, China Cinda is well-equipped to manage and dispose of distressed assets effectively due to its strong market position and risk management expertise.

The company's modest financial profile and higher capitalisation buffers than its national asset management company (AMC) peers have allowed it to focus on its core business of distressed-asset management. Additionally, increased contributions from its key financial subsidiaries have provided stability and diversification benefits. In contrast, some other national AMCs face regulatory constraints, limiting their ability to engage in policy-driven business.

Fitch continues to apply a "look-through" approach when assessing the AMCs' ownership structure and believes the Chinese government will remain the ultimate support provider for national AMCs. The change in shareholder to Central Huijin from the Ministry of Finance may streamline the capital support process and enhance the timeliness of support for China Cinda in the future.

However, Fitch believes that China Cinda and other national AMCs have a lower support priority than systemically important banks, which have larger, deposit-funded balance sheets, and other policy institutions. But, the government would not have difficulty providing support, if needed, given China Cinda's small size relative to that of the systemically important banks in China.

Factors that could lead to a negative rating action or downgrade include a severe weakening of the government's ability or willingness to support China Cinda, significant losses that result in a meaningful deterioration in China Cinda's financial profile, or a significant weakening of its financial profile leading to capital falling towards the regulatory threshold.

On the other hand, factors that could lead to a positive rating action or upgrade include a positive change in the sovereign rating, a stronger government support stance, or an upgrade of the Viability Rating (VR) arising from economic stabilisation in China along with a sustainable improvement in China Cinda's financial profile metrics.

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