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Christine Chan

United States credit rating agency Moody's Investors Service has cut the credit ratings of five international trust and investment corporations (Itics), and said they might be further downgraded.

 The move is the latest indication international confidence in the mainland's financial sector is deteriorating.

 The agency also placed China International Trust and Investment Corp (Citic), the central government's overseas-funding arm, on review for a possible downgrade.

 The five Itics include the government investment arms of Fujian, Shandong, Shanghai, Shenzhen and Tianjin, which had their long-term foreign currency deposit and debt ratings cut.

 Since Guangdong International Trust and Investment Corp (Gitic) was closed on October 6, foreign creditors have been increasingly concerned about the financial health of the Itics and whether they will be bailed out in case of insolvencies.

 Yesterday's downgrades, which Moody's said were prompted by Gitic's closure, came a day after Gitic became the first mainland issuer in modern Chinese history to default on an international bond.

 Some of the Itics claimed Moody's had failed to differentiate between them and was making its decisions without requesting individual information.

 A Shanghai Itic spokeswoman said the agency should not generalise about the sector because each company was in a different financial position.

 'I can assure you that all our debts will be repaid on time and in full. There won't be any repayment defaults, either [on] short-term or long-term loans,' she said.

 She said its outstanding debts had been registered with the State Administration of Foreign Exchange (SAFE), indicating Beijing would guarantee repayment.

 An official at Shandong Itic said the firm had exercised tight risk control and steady management, so it was not battered by problems seen at Gitic.

 'Unlike Gitic, we only have a small amount of foreign debt and guarantees of US$240 million, or 12 per cent of total assets. The amount of domestic loans is even less.'  He said the debts were registered with SAFE and its short-term foreign debts were held within the state-approved quota of $110 million.

 'There is no question of us having the money but not the ability to convert it into foreign currency for debt repayment,' the official said.

 The firm had also controlled forex risk by containing contingent liabilities to about $20 million.

 The official said that, in case of a funding shortage, the firm could meet debt obligations with its infrastructure fund, which had a net asset value of 10.1 billion yuan (about HK$9.4 billion), or about 60 per cent of its assets, as of December.

 The fund had been providing an annual return of 10 per cent to Shandong Itic, which made a net profit of about 211 million yuan last year.

 Moody's said its rating underscored the heightened regulatory risks as well as increasing uncertainties over the availability, strength and timeliness of government support for the Itics.

 It also reflected sharply deteriorating market sentiment towards the Itics and, as a result, increasingly severe pressure on their funding.

 Gitic's failure had exposed the considerable constraints on the financial resources of the regional governments and underlined the uncertainty that they would be able to provide the support they declared for the Itics, it said.

 Meanwhile, Moody's said it would re-examine the likelihood and strength of central government support for Citic in view of sweeping financial reform.

 It would also see how the financial-sector closures would affect the company's funding sources.

 Shenzhen Itic suffered the biggest downgrade, with both long-term foreign currency debt and deposit ratings cut by three notches to B2 and B3 respectively.

 Shandong Itic enjoyed the best rating, with long-term foreign currency debt at Ba2 and deposit rating at Ba3, after they were lowered by two notches.

 The financial strength rating of Fujian Itic was cut to E from E-plus and that of Shandong Itic to E-plus from D.



Gitic closure hits international confidence as Premier rules out catch-all