CNY150,550,000 of debt securities rated
Hong Kong, November 09, 2012 -- Moody's Investors Service has assigned a definitive A1 rating to the following notes:
Issuer: Jigang Bond Finance Limited
CNY150,550,000 Zero Coupon Secured Notes due 2013, assigned definitive A1 rating
Moody's rating addresses only the credit risks associated with the transaction. Other non-credit risks have not been addressed, but may have a significant effect on yield to investors.
The rating addresses the ultimate repayment of the principal amount of the notes to investors by the legal final maturity. The notes do not have any interest promise to investors.
This is a repackaged transaction, under which the issuer will pass through to the noteholders the proceeds under a letter of credit to repay the principal amount of the notes on the maturity date. The issuer is a newly established special purpose vehicle established in the Cayman Islands for the purpose of issuing the notes.
On the closing date, the issuer transferred the notes proceeds to BNP Paribas, Hong Kong Branch (BNP HK; A2/Prime-1/C- for head office rating) as the negotiating bank under the letter of credit. In return, BNP HK transferred its right, title and interest in respect of the proceeds payable under the letter of credit to the issuer.
The primary source of repayment on the notes is the issuing bank of the letter of credit, Industrial & Commercial Bank of China Ltd. (ICBC; A1/Prime-1/D+). ICBC will pay an amount sufficient to pay the principal amount of the notes on the repayment date of the letter of credit, which is around 11 calendar days prior to the notes maturity date.
Consequently, the rating of the notes is closely linked to the rating of ICBC. Any change of ICBC's rating could cause a corresponding rating change to the notes. However, in case ICBC is upgraded, the notes rating may not necessarily be upgraded because of the rating linkage to the two BNP Paribas entities described below.
BNP HK will be the negotiating bank under the letter of credit and the account bank of the transaction, and BNP Paribas Securities Services, Hong Kong Branch (BNP SS, A2/Prime-1 for head office rating) will be the principal paying agent. The transaction will not incorporate any mechanism to replace BNP HK or BNP SS in case of a deterioration in their credit quality.
If the account bank or principal paying agent defaults after ICBC has made the payment but before such payment is transferred to noteholders, the noteholders may suffer loss. Thus, the transaction has a large exposure to account bank and principal paying agent around the notes maturity date.
Considering these roles, the rating of the notes is linked to the ratings of BNP HK and BNP SS, but to a lesser extent compared with the linkage to ICBC. Downgrade of ratings of BNP HK or BNP SS may cause a downgrade to the notes.
In addition, if the negotiating bank defaults, the issuer may not be able to claim ICBC for payment under the letter of credit in case ICBC defaults as well. Thus, the credit quality of the negotiating bank has a secondary impact to the transaction in terms of the potential recovery upon ICBC default.
The principal methodology used in this rating was "Moody's Approach to Rating Repackaged Securities" published in April 2010. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.
In addition, in analyzing this transaction, we incorporated components of the proposed methodology change. The proposed changes are outlined in the Moody's Request for Comment, " The Temporary Use of Cash in Structured Finance Transactions: Eligible Investment and Bank Guidelines", published on 2 July 2012.
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Joe WongAsst Vice President - Analyst Structured Finance Group Moody'sInvestors Service Hong Kong Ltd. 24/F One Pacific Place 88 Queensway Hong Kong China (Hong Kong S.A.R.) JOURNALISTS: (852) 3758 -1350 SUBSCRIBERS: (852) 3551-3077 Jerome Cheng VP - Senior Credit Officer Structured Finance Group JOURNALISTS: (852) 3758 -1350 SUBSCRIBERS: (852) 3551-3077 Releasing Office: Moody's Investors Service Hong Kong Ltd. 24/F One Pacific Place 88 Queensway Hong Kong China (Hong Kong S.A.R.) JOURNALISTS: (852) 3758 -1350 SUBSCRIBERS: (852) 3551-3077 (C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.
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