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Credit Rating: M/P
Industrial and Commercial Bank of China
- Sector: Financial Services
- Sub Sector: Banks
- Region: China
- Credit Rating (Moody’s/Standard & Poor’s/Fitch): M/P
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Fundamental View
AS OF 18 May 2023Our credit view on ICBCAS (ratings: A1/A/A) is based on the strong likelihood of state support in the event of distress, given its large size, systemic importance and majority government ownership.
Its systemic importance is enhanced by its status as China’s largest lender, and it plays a key role in financing the country’s economic development.
The Big 4 banks are generally more prudently managed than their more aggressive smaller competitors, but they are also expected to support the real economy in a downturn.
Business Description
AS OF 18 May 2023- With total assets in excess of RMB 42 tn, ICBCAS is the world's largest bank by assets and is classified as a G-SIB with a capital surcharge of 1.5%.
- ICBCAS was originally set up in 1984 to provide loans to China's large state-owned industrial corporations.
- ICBCAS was recapitalised in 2005 with an injection of $15 bn, following which it was listed in Hong Kong and Shanghai in 2006.
- The government owns a majority of ICBCAS's shares through Central Huijin and the Ministry of Finance, which own stakes of 35% and 31% respectively.
- In addition to a strong onshore presence, ICBC has an extensive international network as well.
Risk & Catalysts
AS OF 18 May 2023China’s sovereign ratings (A1/A+/A+) underpin ICBCAS’s credit standing; any deterioration in the sovereign ratings could negatively affect ICBCAS’s ratings.
Asset quality risk remains as China’s economic momentum slows and the property sector remains under stress. Transparency is limited and credit risks are hard to assess in China as these often depend on the government’s willingness to socialise losses.
ICBCAS is managed on commercial terms but the government may call on it to perform “national service” that overrides profitability considerations. Its profitability has recently been impacted by its social duties to support the real economy including stepping up lending at lower rates, but we do not regard such actions as credit-negative as they reflect the close government links that also underpin the bank’s credit standing.
Key Metrics
AS OF 18 May 2023| RMB bn | FY19 | FY20 | FY21 | FY22 | 1Q23 |
|---|---|---|---|---|---|
| PPP ROA | 1.97% | 1.87% | 1.82% | 1.61% | 1.67% |
| Reported ROA | 1.08% | 1.00% | 1.02% | 0.97% | 0.89% |
| Reported ROE | 13.1% | 12.0% | 12.2% | 11.4% | 11.2% |
| Total Equity/Total Assets | 8.9% | 8.7% | 9.3% | 8.8% | 8.5% |
| CET1 Ratio | 13.2% | 13.2% | 13.3% | 14.0% | 13.7% |
| NPL Ratio | 1.43% | 1.58% | 1.42% | 1.38% | 1.38% |
| Provisions/Average Loans | 1.11% | 1.15% | 1.03% | 0.83% | 1.09% |
| Loan Deposit Ratio | 73% | 74% | 78% | 78% | 77% |
CreditSights View
AS OF 24 May 2023ICBCAS is the largest bank by assets in the world and has a very strong franchise in China. Its majority government ownership adds to its systemically important status – we view ICBC as a very strong and stable credit. Its profitability has recently been impacted by its social duties to support the real economy including stepping up lending at lower rates, but we do not regard such actions as credit-negative as they reflect the close government links that also underpin the bank’s credit standing. Its 1Q23 operating performance lagged its peers and it is the only Big 5 bank that saw a decline in operating income in 1Q23. Capital ratios remained the highest among Chinese banks.
Recommendation Reviewed: May 24, 2023
Recommendation Changed: July 16, 2021
Who We Recommend
Bank Rakyat Indonesia
Mitsubishi UFJ Financial Group
State Bank of India
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Search topics about wealth insights and investments.Bank of China
- Sector: Financial Services
- Sub Sector: Banks
- Country: China
- Region: China
- Credit Rating (Moody’s/Standard & Poor’s/Fitch): M/P
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Fundamental View
AS OF 18 May 2023The Bank of China (BCHINA; ratings: A1/A/A) is one of the Big 4 banks in China. Its subsidiary, BOC Hong Kong, is one of the major banks in Hong Kong.
BCHINA’s systemic importance is enhanced by the leading role it plays in China’s international trade and investment and strong government links.
BCHINA’s financial metrics are a little weaker than ICBCAS and CCB due to its larger overseas exposure, but the Big 4 banks have generally been managed more prudently compared to the smaller and more aggressive joint stock banks.
Business Description
AS OF 18 May 2023- While its origins date back to China's last imperial dynasty, BCHINA was formally established in 1912 and has played the role of China's international bank for more than a century. Its operations outside mainland China include its 66%-owned subsidiary Bank of China (HK) Ltd.
- After 1949, BCHINA became a state entity but was focused on FX and financing of foreign trade. It was set on a path of commercialisation in 1994 but only became a corporate entity in 2003 prior to its listings in HK and Shanghai in 2006. BCHINA is controlled by the government via a 64% stake held by Central Huijin.
- BCHINA was effectively insolvent in the late 1990s and the removal of NPLs to an AMC in 1999 did not fully deal with its legacy bad loans. In 2003, the bank received another $22.5 bn capital injection, paving the way for BOC's HK listing in 2006.
- BCHINA is a G-SIB with a capital surcharge of 1.5%. BOCHK is a D-SIB in HK and is the holding company for all of BCHINA's Southeast Asian operations excluding Singapore.
Risk & Catalysts
AS OF 18 May 2023China’s sovereign ratings (A1/A+/A+) are a key factor behind BCHINA’s credit standing.
BCHINA is managed on commercial terms, but fulfilling the government’s socioeconomic objectives may at times override profitability considerations and require the bank to perform “national service”. We would not regard such actions as credit-negative as they reflect close government links that also underpin the bank’s credit standing.
BCHINA’s overseas footprint has to some extent offset the onshore NIM pressure and led to a stabler NIM compared to peers in FY22. However, as overseas funding costs go up, its NIM will also be under pressure in FY23.
Key Metrics
AS OF 18 May 2023| RMB bn | FY19 | FY20 | FY21 | FY22 | 1Q23 |
|---|---|---|---|---|---|
| PPP ROA | 1.60% | 1.55% | 1.48% | 1.40% | 1.52% |
| Credit Costs | 0.82% | 0.87% | 0.70% | 0.63% | 0.73% |
| Reported ROA | 0.92% | 0.87% | 0.89% | 0.85% | 0.83% |
| Reported ROE | 11.5% | 10.6% | 11.3% | 10.8% | 11.1% |
| Total Equity/Total Assets | 8.1% | 8.4% | 8.3% | 8.4% | 8.2% |
| CET1 Ratio | 11.3% | 11.3% | 11.3% | 11.8% | 11.6% |
| NPL Ratio | 1.36% | 1.46% | 1.33% | 1.32% | 1.18% |
| Loan-Deposit Ratio | 83% | 84% | 87% | 87% | 85% |
CreditSights View
AS OF 15 Jun 2023BCHINA is one of the Big 4 banks (the 4th-largest by assets) with a reasonable capital stack and sufficient liquidity. Its majority government ownership and systemic importance also assures it of strong state support. Its NIM and profitability has trailed its more domestically-focused peers due to higher cost-income ratios of its overseas operations, but its credit costs are also the lowest among the Big 5 banks. Its overseas footprint has to some extent offset the onshore NIM pressure and led to a stabler NIM compared to peers in FY22. However, as overseas funding costs go up, its NIM will also be under pressure in FY23.
Recommendation Reviewed: June 15, 2023
Recommendation Changed: July 16, 2021
Who We Recommend
Bank Rakyat Indonesia
Mitsubishi UFJ Financial Group
State Bank of India
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Search topics about wealth insights and investments.Agricultural Bank of China
- Sector: Financial Services
- Sub Sector: Banks
- Country: China
- Credit Rating (Moody’s/Standard & Poor’s/Fitch): M/P
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Fundamental View
AS OF 18 May 2023Our credit view on AGRBK (credit ratings: A1/A/A) is based on the strong likelihood of state support, given its large size, systemic importance and majority state ownership. This is enhanced by AGRBK’s extensive presence in rural areas.
AGRBK’s financial metrics are a tad weaker than those of peer-group leaders ICBCAS and CCB and in line with BCHINA; however they have been on an improving trend. The Big 4 have been managed more prudently in recent years than the smaller and more aggressive joint stock banks.
We view it as a strong credit taking into account its structural profitability, robust balance sheet metrics, large size, and systemic importance that assure it of state support if needed.
Business Description
AS OF 18 May 2023- AGRBK is the third-largest bank in China and is classified as a G-SIB with a capital surcharge of 1.0%.
- It was founded in 1951 as the Agricultural Cooperative Bank, merged with the central bank and spun out as AGRBK in 1979, charged with financing the rural and agricultural sectors. It was recapitalised in 1999 and again in 2007 by special MOF bonds. It also received $19 bn in equity capital from Huijin, funded by China's FX reserves.
- Due to its poorer asset quality and weaker profitability, AGRBK was the last of the Big 4 banks to be listed in 2010.
- The Chinese government is a majority shareholder of AGRBK via Central Huijin (40%), MOF (35%) and the Social Security Fund (7%).
- AGRBK has the second largest branch network in China after Postal Bank, with a particularly good presence in rural areas.
Risk & Catalysts
AS OF 18 May 2023China’s sovereign ratings (A1/A+/A+) are a key factor behind AGRBK’s credit standing.
AGRBK’s loan growth has been the strongest among the Big 5 banks since FY22, but the impact on net interest income growth was largely offset by a significant contraction in NIM. Rapid loan growth has led to a widened capital ratio differential between AGRBK and other Big 4 banks.
AGRBK is managed on commercial terms but the government may call on it to perform “national service” that overrides profitability considerations. However, we do not see it as a clear credit negative as these actions reflect close state links that underpin ABC’s credit standing.
Key Metrics
AS OF 18 May 2023| RMB bn | FY19 | FY20 | FY21 | FY22 | 1Q23 |
|---|---|---|---|---|---|
| PPP ROA | 1.71% | 1.65% | 1.64% | 1.43% | 1.58% |
| Reported ROA | 0.90% | 0.83% | 0.86% | 0.82% | 0.82% |
| Reported ROE | 12.4% | 11.4% | 11.6% | 11.3% | 12.6% |
| Total Equity/Total Assets | 7.8% | 8.1% | 8.3% | 7.9% | 7.4% |
| CET1 Ratio | 11.2% | 11.0% | 11.4% | 11.2% | 10.7% |
| NPL Ratio | 1.40% | 1.56% | 1.43% | 1.37% | 1.37% |
| Credit Costs | 1.10% | 1.16% | 1.03% | 0.79% | 1.11% |
| Loan-Deposit Ratio | 71% | 74% | 78% | 79% | 76% |
CreditSights View
AS OF 24 May 2023AGRBK is the 3rd-largest of the Chinese state-owned commercial banks and has a strong deposit franchise, especially in rural areas, which gives it access to a large pool of low-cost deposits. We view it as a strong credit taking into account its structural profitability, robust balance sheet metrics, large size and systemic importance that assure it of state support if needed. Its loan growth has been the strongest among the Big 5 banks since FY22, but the impact on net interest income growth was largely offset by a significant contraction in NIM. Rapid loan growth has led to a widened capital ratio differential between AGRBK and other Big 4 banks. Reserve cover is a strength and is well above its peers.
Recommendation Reviewed: May 24, 2023
Recommendation Changed: July 16, 2021
Who We Recommend
Bank Rakyat Indonesia
Mitsubishi UFJ Financial Group
State Bank of India
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Search topics about wealth insights and investments.China Construction Bank
- Sector: Financial Services
- Sub Sector: Banks
- Region: China
- Credit Rating (Moody’s/Standard & Poor’s/Fitch): M/P
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Fundamental View
AS OF 18 May 2023Our credit view on China Construction Bank (CCB; ratings: A1/A/A) is based on the strong likelihood of state support in event of distress, given its large size, systemic importance and majority government ownership.
Its systemic importance is enhanced by the key role it plays in financing China’s economic development and its close government links (and large government shareholding).
The Big 4 banks are generally more prudently managed than their more aggressive smaller competitors, but they are also expected to support the real economy in a downturn.
Business Description
AS OF 18 May 2023- CCB is the second-largest of the Big 4 Chinese banks and is classified as a G-SIB requiring an additional capital surcharge of 1.0%.
- CCB was originally formed in 1954 as a subsidiary of China's MOF to disburse funds intended for fixed asset investment. In the early 1980s, it started taking deposits and making loans outside of direct MOF control. In 1998, its NPLs were transferred to Cinda AMC in exchange for RMB 247 bn of Cinda bonds.
- The bank was re-capitalised again in 2003 with an injection of $23 bn by the PBOC. It was listed in 2005 but the Chinese government remains its controlling shareholder with a 57% stake held through state-owned Central Huijin.
- The bank owns CCB Asia and CCB International in Hong Kong as well as operations in a number of countries.
Risk & Catalysts
AS OF 18 May 2023China’s sovereign ratings (A1/A+/A+) underpin CCB’s credit standing; any deterioration in the sovereign ratings could negatively affect CCB’s ratings.
CCB’s loan growth has been rapid to support the post-COVID economy, but this has also led to increasing pressure on its capital ratios.
CCB may be asked by the government to perform “national service” that overrides profitability considerations, e.g. supporting troubled property developers and extending loans at lower rates during the pandemic. We would not regard such actions as credit-negative as they reflect close government links that also underpin the bank’s credit standing.
Key Metrics
AS OF 18 May 2023| RMB bn | FY19 | FY20 | FY21 | FY22 | 1Q23 |
|---|---|---|---|---|---|
| PPOP ROA | 2.01% | 1.96% | 1.87% | 1.65% | 1.74% |
| Reported ROA | 1.11% | 1.02% | 1.04% | 1.00% | 1.00% |
| Reported ROE | 13.2% | 12.1% | 12.6% | 12.3% | 12.9% |
| Equity/Assets | 8.7% | 8.4% | 8.6% | 8.3% | 8.0% |
| CET1 Ratio | 13.9% | 13.6% | 13.6% | 13.7% | 13.2% |
| NPL Ratio | 1.42% | 1.56% | 1.42% | 1.38% | 1.38% |
| Provisions/Average Loans | 1.14% | 1.19% | 0.95% | 0.77% | 0.94% |
| Loan-Deposit Ratio | 82% | 81% | 84% | 85% | 82% |
CreditSights View
AS OF 24 May 2023CCB is the 2nd-largest of the Chinese state-owned commercial banks and benefits from a strong franchise and close state links. It has the second strongest capital ratios among Chinese banks, just behind ICBC. Its profitability has recently been impacted by its social duties to support the real economy including stepping up lending at lower rates, but we do not regard such actions as credit-negative as they reflect the close government links that also underpin the bank’s credit standing. Its loan growth has been rapid to support the post-COVID economy, but this has also led to increasing pressure on its capital ratios. Profit growth was weak in 1Q23 and will continue to be challenging in FY23. 1Q23 fee income growth though was well above its peers.
Recommendation Reviewed: May 24, 2023
Recommendation Changed: July 16, 2021
Who We Recommend
Bank Rakyat Indonesia
Mitsubishi UFJ Financial Group
State Bank of India
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Search topics about wealth insights and investments.Petron
- Sector: Energy
- Sub Sector: Oil and Gas
- Country: Philippines
- Credit Rating (Moody’s/Standard & Poor’s/Fitch): M/P
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Fundamental View
AS OF 11 May 2023While Petron’s credit metrics remain elevated, we see a stable FY23 credit outlook owing to moderating crude oil prices and resilient fuel demand aided by the company’s dominant market share in 2 markets.
Petron is fairly insulated against high crude oil input costs as about two-third of its total revenues are indexed to Dubai crude prices, which allows for cost pass-throughs in Philippines.
Liquidity remains tight, though we expect its stable fundamentals and strong SMC group reputation to facilitate debt rollover and refinancing.
We see low non-call risk for Petron’s $478 mn c.Jul-2023 perp given its punitive 250 bp coupon step-up, its desire to avoid reputational risk and contagion risk to other SMC perps, and that it can be covered by its unrestricted cash balance or be refinanced.
Business Description
AS OF 11 May 2023- Petron is the largest oil refining and retailing company in the Philippines, and the third largest player in Malaysia. It maintains a 24% market share in the Philippines (followed by Shell and Caltex) and a 20% market share in Malaysia (largest being Petronas), based on total fuel sales volumes.
- Petron has a total refining capacity of 268k barrels/day (bpd) and accounts for about 30% of the Philippines' fuel needs. Its petroleum refining facilities include the Limay Refinery in Bataan, Philippines (capacity of 180k bpd; 67% of total) and the Port Dickson Refinery in Negeri Sembilan, Malaysia (capacity of 88k bpd; remaining 33% of total).
- Petron's refineries process crude oil into a full range of petroleum products including gasoline, diesel, LPG, jet fuel, kerosene and petrochemicals.
- It further markets and retails these fuel products through its fuel service stations located across the Philippines (2,400 outlets) and Malaysia (700 outlets).
- Petron sources its crude oil supplies from third-party suppliers, namely Saudi Aramco, Kuwait Petroleum Corporation and Exxon Mobil, which are bought on the basis of term contracts and in the spot market.
- Petron mainly supplies its petroleum and fuel products to customers in Malaysia and the Philippines (~95% of annual revenue).
- Petron is 68% owned by San Miguel Corporation (SMC), one of the largest and most diversified conglomerates in the Philippines based on total revenues and assets. SMC's CEO, Mr. Ramon Ang, is also Petron's CEO.
Risk & Catalysts
AS OF 11 May 2023Petron holds 55 days of inventory, which is on the high side relative to industry standards. This exposes the company to inventory losses attributable to potential short-term swings in crude oil prices.
Prices of fuel products are adjusted on a weekly basis in the Philippines, according to international crude oil prices.
Petron operates in low-margin business (EBITDA margins ~5%) and maintains elevated credit metrics.
Petron is highly dependent on its Limay petroleum refining complex that makes up two-thirds of its total refining capacity (67%). Any events that disrupt the refinery’s operations could adversely affect Petron’s total revenues.
Key Metrics
AS OF 11 May 2023| PHP bn | FY20 | FY21 | FY22 | 1Q22 | 1Q23 |
|---|---|---|---|---|---|
| Debt to Book Cap | 74.3% | 72.3% | 74.0% | 71.9% | 72.7% |
| Net Debt to Book Cap | 66.3% | 63.3% | 65.5% | 63.5% | 65.2% |
| Debt/Total Equity | 289.4% | 261.6% | 284.2% | 256.0% | 266.4% |
| Debt/Total Assets | 71.3% | 71.2% | 70.2% | 70.0% | 68.1% |
| Gross Leverage | 65.4x | 11.2x | 10.9x | 9.3x | 10.2x |
| Net Leverage | 58.3x | 9.8x | 9.7x | 8.2x | 9.1x |
| Interest Coverage | 0.3x | 2.5x | 2.2x | 3.0x | 1.9x |
| EBITDA Margin | 1.3% | 5.9% | 3.4% | 6.4% | 5.8% |
CreditSights View
AS OF 11 May 2023 We maintain our Market perform recommendation on Petron. Its c.Apr-2026 perp trades 15 bp wider than SMC GP c.Jan-2026 perp, that rightly reflects its slightly longer tenor. We think Petron is fundamentally stronger than SMC GP, as it enjoys cost pass-through mechanism, has modestly better leverage metrics and has manageable perps turning callable. We think it is SMC GP that has room to widen. Overall, we see a stable credit outlook for Petron amid resilient fuel demand and lower crude oil prices, and its cost pass-through mechanism in Philippines. Its leverage metrics remain elevated, negated partly by its relatively low capex. We see low non-call risk for its $478 mn c.Jul-2023 perp given Petron’s ability to tap its cash balance, refinance, and its desire to avoid reputational risk.
Recommendation Reviewed: May 11, 2023
Recommendation Changed: January 26, 2022
Who We Recommend
Bank Rakyat Indonesia
Mitsubishi UFJ Financial Group
State Bank of India
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Search topics about wealth insights and investments.Reliance Industries
- Sector: Manufacturing
- Sub Sector: Diversified Conglomerates
- Country: India
- Region: India
- Bond: RILIN 4.125 25
- Indicative Yield-to-Maturity (YTM): 5.531% (Indicative as of March 2)
- Credit Rating (Moody’s/Standard & Poor’s/Fitch): Baa2 / BBB+ / -M/P
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Fundamental View
AS OF 09 May 2023Reliance Industries (RIL) is positioned as India’s largest company by revenues, profits and exports. It enjoys a large, diversified scale of operations and dominates various key sectors (refining, petrochemicals, retail and telecom), which allow for earnings resilience.
RIL also plans to ramp up its presence in the renewable energy space, which could provide the next leg of growth and improve its ESG perception.
RIL incurs significant capex, particularly from heavy investments in 5G telecom and the renewables space (~INR 750 bn over the next 3 years). This has weighed on its free cash flow generation, though we acknowledge RIL’s historically prudent financial management and robust credit metrics that provide ample elbowroom for some credit profile deterioration.
Business Description
AS OF 09 May 2023- RIL is an Indian diversified conglomerate engaged in oil & gas refining, marketing, petrochemicals, organized retail, telecom and digital services, amongst others. It is the largest company in India by revenue, profits, exports and market capitalization (INR 14 tn).
- It is the second largest refiner in India and produces petroleum products such as petrol, high-speed diesel (HSD), aviation turbine fuel (ATF), LPG and lubricants.
- It is the largest petrochemicals producer in India, boasting production of ~38 mn tons in FY20. Through its integrated Jamnagar refinery complex, it produces Polymers/Plastics, Elastomers (synthetic rubber) and Polyester products.
- It is the largest retailer in India in terms of revenue. It operates 16.6k stores (as of September 2022) to sell products ranging from consumer electronics, fashion and lifestyle, grocery, petrol retail and telecom and digital services. It launched its online retail channel, 'JioMart', in December 2019.
- Reliance Jio is the largest mobile telecom operator by subscriber base (426 mn as of March 2021) in India and boasts the widest 4G wireless network in the country.
- In 2021, RIL announced investments to the tune of INR 750 bn/ $10 bn (for next 3 years) to build a renewable energy ecosystem which will include 4 giga factories. Set to be located in Gujarat, the factories will produce solar modules, hydrogen, fuel cells and battery grid to store electricity. Long-term goals also include building 100 GW of PV solar plants by 2030.
Risk & Catalysts
AS OF 09 May 2023RIL’s O2C (oil-to chemicals) business margins have been under pressure owing to the squeeze in key downstream chemical product margins (i.e. an absolute decline in product prices vs. feedstock prices), which impacted polymer and aromatics margins.
RIL incurs significant capex, particularly from heavy investments in 5G telecom and the renewables space (~INR 750 bn over the next 3 years). This has weighed on its free cash flow generation, though we acknowledge RIL’s historically prudent financial management and robust credit metrics that provide ample elbowroom for some credit profile deterioration.
RIL faces key-person risk; 65-year old Chairman Mukesh Ambani has begun to hand over the reins of RIL’s different business divisions to his children.
Key Metrics
AS OF 09 May 2023| INR bn | FY19 | FY20 | FY21 | FY22 | FY23 |
|---|---|---|---|---|---|
| Debt to Book Cap | 42.4% | 43.0% | 24.6% | 24.1% | 26.4% |
| Net Debt to Book Cap | 40.8% | 39.2% | 22.9% | 21.0% | 20.5% |
| Debt/Total Equity | 73.6% | 75.5% | 32.5% | 31.7% | 35.9% |
| Debt/Total Assets | 29.0% | 29.9% | 19.7% | 18.8% | 19.6% |
| Gross Leverage | 3.4x | 3.9x | 3.2x | 2.6x | 2.3x |
| Net Leverage | 3.2x | 3.5x | 3.0x | 2.2x | 1.8x |
| Interest Coverage | 3.3x | 3.2x | 3.1x | 5.7x | 7.3x |
| EBITDA Margin | 14.8% | 14.7% | 16.6% | 15.3% | 16.0% |
CreditSights View
AS OF 21 Jun 2023We have a Market perform recommendation on RIL. We think RIL’s bonds trade fairly to similarly rated Indian peers Bharti Airtel and BPCL. We like RIL’s large, diversified scale of operations and dominant market shares in key sectors (refining, petrochemicals, retail and telecom) that allow for earnings resilience. RIL also plans to ramp up its presence in the renewable energy space, which could provide the next leg of growth and improve its ESG perception. While we remain aware of RIL’s elevated capex needs could persist over the next 2-3 years, we think the impact is mitigated by RIL’s historically prudent financial management and healthy credit metrics that provide ample elbowroom for some credit profile deterioration.   Â
Recommendation Reviewed: June 21, 2023
Recommendation Changed: June 30, 2021
Who We Recommend
Bank Rakyat Indonesia
Mitsubishi UFJ Financial Group
State Bank of India