Six Hong Kong securities firms rated as credit negative due to China’s property stress

Despite this, strong parent support and low leverage are expected to mitigate its potential impact. 

A slip in six of Hong Kong’s securities firms’ credit ratings is expected due to China’s current problems with its property sector.

"China's property sector distress is credit negative for six of our rated securities firms in Hong Kong that are subsidiaries of Chinese banks and securities companies. Securities-owned firms face lower investment risks but higher operational risks than bank-owned companies," said Jessie Hong, Moody’s. 

The six firms include ABC International Holdings Limited (ABC), BOCOM International Holdings Company Limited (BOCOM), CMB International Capital Corporation Limited (CMBI), Guotai Junan International Holdings Limited (GTJA),  Haitong International Securities Group Ltd (Haitong International), and BC International Holdings Limited (ICBC). All in all, 35% of these six companies' investment and loan portfolios are based in China’s real estate sector as of the end of 2020.

GTJA and Haitong International, in particular, were expected by the research group to better manage investment risks on property-related assets, with both lowering their related investments in the first half of 2021. Operational risks on their margin financing business, however, are expected to increase due to higher volatility in property-related financial assets and risk control burden. 

Meanwhile, ABC, BOCOM, and ICBC are positioned in a more vulnerable spot to further credit deterioration in the Chinese property sector.

“Moody's stress test suggests that the six companies' low leverage will support their credit standing against property-related risks. Amid a stress scenario of 35%-60% overall losses on their property-related exposures, the companies would report negative return on average assets, but their leverage would be below 10x, the peer average globally,” added Hong.