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S&P ratings on Guotai Junan Securities, unit on CreditWatch amid planned IPO

S&P Global Ratings placed the ratings of Guotai Junan Securities Co. Ltd. and unit Guotai Junan International Holdings Ltd. on CreditWatch with positive implications to reflect a likely improvement in Guotai Junan Securities' capital position following its plan for an IPO in Hong Kong.

The agency has assigned a BBB long-term and A-2 short-term issuer credit ratings and a "cnA" long-term and "cnA-2" short-term Greater China regional scale ratings to the China-based securities company and its subsidiary.

The rating agency said March 31 that Guotai Junan Securities could raise about HK$16.5 billion from the new global offering of H shares and potentially sustain the company's risk-adjusted capital ratio, before adjustments, above 15% by the end of 2017.

However, S&P warned of some uncertainty regarding the company's risk profile around capital allocation following the proposed share sale given that the company plans to use a majority of the proceeds for its financing and investment businesses.

S&P expects to resolve the CreditWatch after the company demonstrates its growth strategies, risk appetite and ability to maintain its record of limited credit losses following its IPO.

S&P could raise the ratings if it believes Guotai Junan Securities can maintain strong capitalization while a ratings affirmation is possible if the company's risk-adjusted capital ratio is likely to stay below 15% over the next 12 months.

S&P Global Ratings and S&P Global Market Intelligence are owned by S&P Global Inc.