Chong Hing Bank 6.5% Pert Non cumulative AT1 Bond

USD300 million Undated Non-Cumulative Subordinated Additional Tier 1 Capital Securities

1	Issuer	Chong Hing Bank Limited
2	Unique identifier (eg CUSIP, ISIN or Bloomberg identifier for private placement)	ISIN : XS1107229582
3	Governing law(s) of the instrument	English law / Hong Kong law
	Regulatory treatment
4	Transitional Basel III rules#	NA
5	Post-transitional Basel III rules+	Additional Tier 1
6	Eligible at solo*/group/group & solo	Solo and Group
7	Instrument type (types to be specified by each jurisdiction)	Undated Non-Cumulative Subordinated Capital Securities
8	Amount recognised in regulatory capital (Currency in million, as of most recent reporting date)	(HKD million)
		2,313.5
9	Par value of instrument	USD300 million
10	Accounting classification	Equity
11	Original date of issuance	25 September 2014
12	Perpetual or dated	Perpetual
13	Original maturity date	No maturity
14	Issuer call subject to prior supervisory approval	Yes
		The First Call Date is on 25 /9//19.
		It has no fixed redemption date. Optional Redemption (on a designated date in 2019 or on any
15	Optional call date, contingent call dates and redemption amount	Distribution Payment Date thereafter),  Tax Redemption and Regulatory
		Redemption are all subject to prior written consent of  the Hong Kong Monetary
		Authority. Redemption amount will be the then prevailing principal amount.
16	Subsequent call dates, if applicable	NA
	Coupons / dividends
17	Fixed or floating dividend/coupon	Fixed
18	Coupon rate and any related index	At a fixed rate of 6.5% per annum until 25 September 2019.
		Thereafter reset at: five years U.S. Treasury Rate + 4.628%
19	Existence of a dividend stopper	Yes
20	Fully discretionary, partially discretionary or mandatory	Fully discretionary
21	Existence of step up or other incentive to redeem	No
22	Noncumulative or cumulative	Noncumulative
23	Convertible or non-convertible	Non-convertible
24	If convertible, conversion trigger (s)	NA
25	If convertible, fully or partially	NA
26	If convertible, conversion rate	NA
27	If convertible, mandatory or optional conversion	NA
28	If convertible, specify instrument type convertible into	NA
29	If convertible, specify issuer of instrument it converts into	NA
30	Write-down feature	Yes
		If a Non-Viability Event occurs and is continuing, the Bank shall, upon the
		provision of a Non-Viability Event Notice, irrevocably reduce the then principal
		amount of, and cancel any accrued but unpaid Distribution in respect of, each
		Capital Security (in each case in whole or in part) by an amount equal to the Non-
		Viability Event Write-off Amount per Capital Security.
		"Non-Viability Event” means the earlier of:
31	If write-down, write-down trigger(s)	(i) the Hong Kong Monetary Authority notifying the Bank in writing that
		the Hong Kong Monetary Authority is of the opinion that a Write-off or
		conversion is necessary, without which the Bank would become
		non-viable; and
		(ii) the Hong Kong Monetary Authority notifying the Bank in writing that
		a decision has been made by the government body, a government officer
		or other relevant regulatory body with the authority to make such a
		decision, that a public sector injection of capital or equivalent support
		is necessary, without which the Bank would become non-viable.
32	If write-down, full or partial	Full or partial
33	If write-down, permanent or temporary	Permanent
34	If temporary write-down, description of write-up mechanism	NA
		Subordinated to all claims of:
		(i) all unsubordinated creditors of the Bank (including depositors),
35	Position in subordination hierarchy in liquidation (specify instrument type immediately senior	(ii) creditors in respect of Tier 2 Capital Securities of the Bank, and
	to instrument)	(iii) all other Subordinated Creditors of the Bank whose claims are stated
		to rank senior to the Capital Securities or rank senior to the Capital
		Securities by operations of law or contract
36	Non-compliant transitioned features	No
37	If yes, specify non-compliant features	NA

溫馨提示：CoCo bond是風險甚高的投資。雖然發行人都是大到不能倒的金融機構，但債券本身性質是轉移金融機構面對嚴峻危機衝擊時的風險。所以價格可以非常波動，甚至損失大部份或全部本金。雖然機率低，卻不表示沒有機會。所以要非常了解CoCo bond的機制和自己的承受能力才可以踫，不適宜重倉或高槓干操作。

Rating Action: 

Moody's affirms Chong Hing Bank's ratings and changes its outlook to stable from negative

  

Global Credit Research - 21 Aug 2015

Hong Kong, August 21, 2015 -- Moody's Investors Service has affirmed Chong Hing Bank Limited's baseline credit assessment (BCA)/adjusted BCA at baa2 and long-term and short-term bank deposit ratings at Baa2/P-2. Moody's has also affirmed the bank's foreign currency Basel II-compliant subordinated debt rating at Baa3, foreign currency Basel III-compliant non-cumulative preference share rating at Ba2(hyb), and counterparty risk assessment at Baa1(cr)/P-2(cr). The bank's outlook has been changed to stable from negative.

A list of all affected ratings is available at the end of this press release.

RATINGS RATIONALE

The change in outlook to stable from negative considers the bank's proposed rights issue that significantly improves its capital adequacy. The bank announced on 17 August 2015 that it plans to raise approximately HKD3,708 million before expenses of equity. Yuexiu Enterprises (Holdings) Limited (Yuexiu, unrated), which currently owns 75% of the bank's shares, has agreed to subscribe in full its pro-rata shares.

The rights issue will boost the bank's Common Equity Tier 1 (CET1) capital ratio by approximately 4 percentage points thereby strengthening the bank's loss absorption buffers. Before the rights issue, Chong Hing Bank's capital-related metrics deteriorated following strong balance sheet growth in 2014 and 1H 2015 as we expected post the acquisition. Its CET1 ratio fell to 8.7% at end-June 2015 from 10.8% at end-2013 and 9.6% at end-2014. The pressure on capital adequacy will be mitigated by the proposed rights issue.

The change in outlook and affirmation of ratings also considers that the bank has maintained sound asset quality metrics in the past few years. It reported an impaired loan ratio of 0.05% at end-June 2015, which compares favorably with similarly rated regional peers.

We expect lending to mainland entities will continue to increase but at a measured pace. Lending to mainland companies has grown faster since 2014 since the bank's takeover by Yuexiu, but from a low base. At end-June 2015, lending to mainland customers accounted for 7.2% of gross loans. Nearly half of the bank's non-bank mainland exposures are to central or local government-owned entities which typically entail lower credit risks than lending to smaller private companies. Its impaired loan ratio for mainland lending remains low at 0.05% at end-June 2015 but because these loans are still unseasoned, the sustainability of their asset quality will be tested in a slowing economic environment in China.

Profitability has also improved following the acquisition by Yuexiu in February 2014. Excluding the one-off gains on property sales, it reported an annualized return on assets of 0.8% in 2014 and 1.2% in 1H 2015, up from 0.7% in 2013.

Chong Hing Bank maintains a sound liquidity profile, with a loan-to-deposit ratio consistently below 70%. Nevertheless, the bank's loan-to-deposit ratio has trended up to 67.7% at end-June 2015, from 62.0% at end-2013. Meanwhile, the bank has a limited reliance on wholesale funding. Customer deposits accounted for 88.1% of total liabilities at end-June 2015.

WHAT COULD CHANGE THE RATING -- UP

The bank's rating may be upgraded if it can maintain consistently stronger capitalization following the proposed rights issue and good asset quality while improving its franchise and market position.

We may also consider an upgrade of the bank's deposit ratings if we judge that the increasing strategic importance of the bank to the Guangzhou government through Yuexiu merits consideration of including support in the ratings.

WHAT COULD CHANGE THE RATING - DOWN

Chong Hing Bank's ratings could be downgraded if its balance sheet growth materially outpaces its peers and the bank adopts a more aggressive risk-taking approach.

The bank's standalone assessment could be adjusted lower if its asset quality metrics deteriorate, with impaired loans exceeding 2% of gross loans, or if its capital adequacy weakens with its tangible common equity/RWA ratio falling below 10.5%.

In addition, a rapid increase in its Mainland exposures will render the bank more vulnerable to adverse economic developments in China, and could trigger a downward adjustment to its standalone assessment.

The following ratings are affirmed:

Local currency and foreign currency long-term bank deposits ratings: Baa2

Local currency and foreign currency short-term bank deposits ratings: P-2

Foreign currency Basel II-compliant subordinated debt rating: Baa3

Foreign currency Basel III-compliant non-cumulative preference shares rating: Ba2(hyb)

Counterparty risk assessments: Baa1(cr)/P-2(cr)

Baseline credit assessment (BCA) and Adjusted BCA: baa2

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks published in March 2015. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Chong Hing Bank Limited is headquartered in Hong Kong and reported total assets of HKD116 billion at end-June 2015.