Hong Kong, February 18, 2019 -- Moody's Investors Service has assigned a Ba2 long-term issuer rating and corporate family rating (CFR) to Tibet Financial Leasing Co., Ltd.
This is the first time that Moody's has assigned ratings to Tibet Financial Leasing.
The outlook is stable.
Tibet Financial Leasing's Ba2 issuer rating and CFR incorporate the company's 1) Baseline Credit Assessment (BCA) of b1, and 2) a two-notch uplift based on Moody's assumption that the company will receive — in times of need — a moderate level of indirect support from and high level of dependence on the Government of China (A1 stable) via the Government of the Tibet Autonomous Region through some of its shareholders, under Moody's joint-default analysis for government-related issuers.
The b1 BCA takes into account Tibet Financial Leasing's sound financial metrics, specifically, its good profitability and asset quality. Moreover, the company has a sustained level of solid capital due to the capital injections from its shareholders in 2016-2018.
However, the BCA is constrained by the company's (1) short operating history and unseasoned asset quality, (2) rapid asset growth which puts pressure on its risk management, and (3) high liquidity risk due to asset and liability mismatches.
Established in May 2015, Tibet Financial Leasing is one of the financial leasing companies regulated by the China Banking and Insurance Regulatory Commission (CBIRC) and provides leasing services mainly to public utilities, the leasing and business services industry, as well as manufacturing and agricultural sectors.
Tibet Financial Leasing reported RMB736 million unaudited net profit in 2018, up from RMB671 million in 2017 and RMB183 million in 2016 because of increasing business opportunity and improving efficiency. Over the past few years, the company has had no overdue, special mention or nonperforming loans. It has also received capital injections from its shareholders to support its business growth.
However, the company has a short operating history. It will take time for Tibet Financial Leasing to build up its franchise in the leasing industry and a track record on credit risk management and asset quality control.
The company reported substantial growth in the past few years. Specifically, the unaudited total assets increased to around RMB48.7 billion at the end of 2018 from only RMB18.5 billion at the end of 2016. Such rapid asset growth could bring operating challenges and put pressure on its risk management, resulting in a deterioration in asset quality as the portfolio seasons. Such risk is partly mitigated by the company's high provision ratio of 2.5%.
Tibet Financial Leasing relies on short-term wholesale funding, including borrowing from banks and other financial leasing companies to support its long-term leasing business. Consequently, it is exposed to interest rate risk and refinancing risk, due to the mismatch in the tenor of its assets and liabilities. Such risks are partially mitigated by its increasing funding sources from long-term payables and corporate debt.
Tibet Financial Leasing is 48.5% owned by a private company in China, Tunghsu Group Co., Ltd, and 29.3% owned by the Government of the Tibet Autonomous Region via the Tibet Autonomous Region Investment Co Ltd, Bank of Tibet Co., Ltd, and Tibet Autonomous Region State-owned Assets Management Company.
Since Tunghsu Group is only a financial investor, Moody's has not incorporated any assumption of affiliate support from Tunghsu Group in Tibet Financial Leasing's ratings.
The moderate level of indirect support from the Government of China via the Government of the Tibet Autonomous Region, if needed, considers the Government of the Tibet Autonomous Region as an originator in setting up Tibet Financial Leasing.
Furthermore, as the sole financial leasing company in the region, Tibet Financial Leasing supports the development of financial services in the Tibet Autonomous Region and helps attract investments from other provinces. Nonetheless, currently, the majority of the company's leasing business is in other provinces in China and outside of the Tibet Autonomous Region.
The moderate level of support assumption is reinforced by CBIRC's regulation on financial leasing companies, which requires the originators and major shareholders to include a commitment in Tibet Financial Leasing's Article of Association to provide liquidity and capital support in times of stress.
What Could Change the Rating -- Up
Tibet Financial Leasing's ratings could be upgraded if the company (1) establishes a good operating track record and maintains its existing good financial metrics, including strong profitability and a low nonperforming loan ratio, and (2) reduces the tenor mismatch between its assets and liabilities.
Moody's could also upgrade the company's ratings if Moody's observes a stronger connection between the company and the Government of the Tibet Autonomous Region, including increasing the government's shareholding to over 50% and more explicit support from the central government via the Government of the Tibet Autonomous Region.
What Could Change the Rating -- Down
Tibet Financial Leasing's ratings could be downgraded if Moody's observes (1) a weakening of support from the Chinese government via the Government of the Tibet Autonomous Region, (2) a significant reduction in shareholding by the Government of the Tibet Autonomous Region, (3) a significant deterioration in the company's asset quality, due to weak risk management, and/or (4) a decline of tangible common equity/tangible managed assets to below 11% due to higher than expected asset growth.
The methodologies used in these ratings were Finance Companies published in December 2018 and Government-Related Issuers published in June 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.
Headquartered in Beijing, Tibet Financial Leasing Co., Ltd. reported unaudited assets of RMB48.7 billion at the end of 2018.