S&P: China United SME on watch

S&P said it placed China United SME Guarantee Corp.’s BB+ long-term insurer financial strength and issuer credit ratings on CreditWatch with negative implications, along with its cnBBB long-term Greater China regional scale rating.

The agency also said it placed the company’s BB+ long-term issue rating and the cnBBB long-term Greater China regional scale rating on the senior unsecured notes that BL Capital Holdings Ltd. issued on CreditWatch with negative implications.

China United SME guarantees the notes, S&P explained.

The CreditWatch placement reflects a view that the company's increasing investments in higher-risk asset classes could weaken its capitalization, the agency said.

China United SME is gradually increasing investment allocation to higher-risk asset classes, including alternative investment products, equity securities and long-term equity investments, S&P said.

The agency said it believes the company's capital could become more vulnerable to growing defaults and investment market volatility in China.

Meanwhile, the company received capital injections from new and existing shareholders in 2016, S&P said.

The financial flexibility this brings could temper the negative impact of the increasing investment risk, the agency added.

The watch will be resolved in the next 90 days when the company provides more information on investment and liquidity management strategies, S&P said.

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