Fitch Rates CSSC (Hong Kong) Shipping’s Proposed USD Green Bonds ‘A(EXP)’
Fitch Ratings has assigned an expected rating of ‘A(EXP)’ to CSSC (Hong Kong) Shipping Company Limited’s (CSSC HK Shipping, A/Stable) proposed senior unsecured US dollar ‘green bonds’. The proposed notes are to be issued by CSSC Capital 2015 Limited, CSSC HK Shipping’s wholly owned offshore special-purpose vehicle registered in the British Virgin Islands.
The proposed notes will be listed on the Hong Kong Stock Exchange, and the proceeds will be used to develop the company’s leasing business, including financing or refinancing expenditure on eligible ‘green’ and ‘blue’ projects in accordance with CSSC HK Shipping’s green finance framework, as well as the refinancing of existing indebtedness and for general corporate purposes. The final ratings are contingent upon the receipt of final documents conforming to the information already received.
KEY RATING DRIVERS
The expected rating is in line with CSSC HK Shipping’s Long-Term Issuer Default Rating (IDR) as the proposed notes will be unconditionally and irrevocably guaranteed by CSSC HK Shipping and will at all times rank pari passu with all its other direct, unsubordinated, unconditional and unsecured obligations, except for certain obligations required to be preferred by law or as otherwise provided in the terms and conditions of the bonds.
CSSC HK Shipping’s ratings reflect strong institutional support from its parent, China State Shipbuilding Corporation (CSSC), whose rating is based on support from the China sovereign (A+/Stable). Fitch regards CSSC HK Shipping as a strategically important subsidiary of CSSC, servicing the parent’s core shipbuilding business; CSSC HK Shipping acts primarily as a sales unit of CSSC, and helps global clients select vessels with the provision of financing solutions.
For further information on the drivers and sensitivities of CSSC HK shipping’s ratings, see “Fitch Affirms CSSC (Hong Kong) Shipping at ‘A’; Outlook Stable”, dated 19 May 2021.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
The expected rating on the proposed notes are equalized with CSSC HK Shipping’s IDR, and will move in tandem with any change to CSSC HK Shipping’s rating. A significant adverse change in China’s capital-account regulations that restrain CSSC from providing timely cross-border support for CSSC HK Shipping to service its debt obligations could trigger a downgrade.
CSSC HK Shipping’s IDR would be downgraded if there is any sign of weakening in the linkage between CSSC HK Shipping and CSSC, including significant ownership dilution, a reduction in CSSC HK Shipping’s strategic role in the group or notable expansion in non-group-related businesses, and the size of the subsidiary relative to CSSC. A reduction in its strategic importance in the merged group after the merger between CSSC and CSIC is completed would also lead to negative rating action.
Any negative change in Fitch’s internal view on CSSC’s credit profile or a downgrade of China’s sovereign rating would affect CSSC HK Shipping’s ratings by the same magnitude.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
The ratings on the proposed notes are equalised with CSSC HK Shipping’s IDR and will be upgraded if CSSC HK Shipping is upgraded.
CSSC HK Shipping’s IDR could be upgraded if its linkage with CSSC strengthens, such that the company becomes exclusively captive and a wholly owned subsidiary or if there is any positive change in Fitch’s view on CSSC and, ultimately, China’s sovereign rating.
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
DATE OF RELEVANT COMMITTEE
18 May 2021
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
CSSC HK Shipping’s rating is supported by Fitch’s internal credit view of CSSC.
CSSC (Hong Kong) Shipping Company Limited has an ESG Relevance Score of ‘4’ for Financial Transparency due to limited asset quality transparency of China’s leasing sector in general, which has a negative impact on the standalone credit profile, 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.