Rating Action: Moody’s affirms Shaanxi AMC’s Baa3/P-3 issuer ratings; outlook stableGlobal Credit Research – 17 Mar 2022Hong Kong, March 17, 2022 — Moody’s Investors Service has affirmed the Baa3 foreign currency and local currency long-term issuer ratings, Prime-3 foreign currency and local currency short-term issuer ratings, and Baa3 long-term foreign currency senior unsecured rating of Shaanxi Financial Asset Management Co., Ltd. (Shaanxi AMC).Shaanxi AMC’s standalone assessment remains unchanged at ba3 and the entity-level outlook on the company remains stable.The affirmation of Shaanxi AMC’s ratings with a stable outlook reflects Moody’s view that (1) the recent capital injection from two new investors can mitigate Shaanxi AMC’s capital adequacy pressure driven by rapid asset growth; (2) the company will maintain stable asset quality and good profitability over the next 12-18 months; and (3) the company will continue to benefit from the very high level of support from the Government of China (A1 stable) due to its distressed asset management function.RATINGS RATIONALEShaanxi AMC’s assets grew rapidly due to increasing demand for the company’s distressed asset management, debt to equity swap (DES) and bond guarantee businesses in Shaanxi province. The company’s total assets increased by 50% compound annual growth rate to RMB42.3 billion as of the end of June 2021, from RMB23 billion as of the end of 2019, which lowered its tangible common equity/tangible managed assets (TCE/TMA) to 14.2% from 22.7%.The company received around RMB1 billion in additional equity capital from new investors at the end of 2021, which will fund future business growth, and Moody’s therefore expects the company’s capital adequacy to remain stable at current level.While Shaanxi AMC has relatively high investment, credit and concentration risks in industries that face overcapacity, including the energy and coal mining sectors, the company has leveraged various collaterals and agreements to mitigate these risks and protect its interests. Buoyed by higher coal prices that will support the coal mining sector, Moody’s believes that Shaanxi AMC’s asset quality and profitability will remain stable over the next one to two years. The company will also diversify its exposure to the non-energy sector, which will lower its concentration risk in the long term.Shaanxi AMC continues to use long-term bank borrowing and bonds to support its DES projects, which helps reduce mismatches between its assets and liabilities and will mitigate refinancing risks over the next few years. Having said that, we expect the company’s debt coverage ratio to weaken slightly with increasing amount of debts maturing within one year.Moody’s continues to expect a very high level of support from the Chinese government for Shaanxi AMC, driven by its shareholding structure and distressed asset management function.Shaanxi AMC’s two new shareholders, Yulin City Investment Operating Group Co., Ltd. and Shen Mu Financial Holdings Group Co., Ltd, are local government investment companies in Shaanxi province. Shaanxi AMC, as the sole local distressed asset management company in Shaanxi province, carries out an important policy function of managing financial risks and deleveraging state-owned enterprises (SOEs) in Shaanxi province. Under the National Development and Reform Commission’s direction, the company will continue to play a critical role in commercial DES programs over the next few years, helping Shaanxi’s SOEs to reduce their leverage.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSMoody’s could upgrade Shaanxi AMC’s issuer and bond ratings if (1) there are signs the government is strengthening support for the company as the latter assumes greater strategic importance or additional policy roles; or (2) the company’s standalone assessment improves.Shaanxi AMC’s standalone assessment could improve if the company (1) maintains stable asset quality over the economic cycle; (2) slows down its asset growth and maintains the TCE/TMA ratio at 16%; and (3) sustains its business model and profitability.Conversely, Moody’s could downgrade Shaanxi AMC’s issuer and bond ratings if (1) the government is no longer the largest shareholder of the company; (2) the company’s importance in Shaanxi province’s distressed asset management sector declines; or (3) its standalone assessment deteriorates.Shaanxi AMC’s standalone assessment could weaken if its (1) asset quality deteriorates; (2) TCE/TMA ratio declines to 12% due to rapid asset growth; (3) profitability drops significantly; or (4) funding profile weakens due to an increase in the share of short-term financing, and a significant reduction in its available credit lines.The principal methodology used in these ratings was Finance Companies Methodology published in November 2019 and available at Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.Registered in Xian, Shaanxi Financial Asset Management Co., Ltd. is the sole local distressed asset management company in Shaanxi province. 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