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Moody's assigns definitive Aa1 rating to Hong Kong's Sukuk issuance
Moody's definitive ratings for these debt obligations follow the provisional ratings assigned in May, 2015. Moody's rating rationale was set out in a press release published on the same day.
The Aa1 rating assigned to the Trust Certificates is at the same level as the long-term local-currency and foreign-currency issuer ratings of Hong Kong, as the sukuk certificate holders will
1. Effectively be exposed to Hong Kong's senior unsecured credit risk;
2. Not be exposed to the risk of performance of the underlying assets relating to the Certificates;
3. Have rights to the proceeds of payments from the HKSAR Government ranking pari passu with other senior unsecured obligations.
Hong Kong's Aa1 government bond rating reflects a strong, competitive economy, very high institutional strength, very high government financial strength, and its demonstrated resilience to shocks. However, the SAR's risk profile also includes challenges from demographics, a possible slowdown in growth, albeit still to robust levels and exposure to credit shocks that might emanate from China.
Hong Kong's economic strength is evident from its growth record. Real GDP increased by an average of 3.9 per cent annually during the past decade, supported by buoyant trade and financial activity related to the mainland.
The HKSAR Government's financial position is among the strongest of any government rated by Moody's. The budget has been in surplus for the last eleven consecutive years, allowing the Government to build up large fiscal reserves that total HKD 828.5 billion ($106.9 billion) by the end of March 2015. These reserves far exceed the very low level of government debt of five per cent of GDP and would cover almost two years of government expenditures.
Moody's Aa1 rating for Hong Kong also incorporates risks related to China, since Hong Kong is a Special Administrative Region of China. Hong Kong companies derive a considerable portion of their revenues from activities elsewhere in China and are major investors there.
The financial markets have also become interconnected to a significant degree, with Chinese companies making up a significant portion of the market capitalization of the Hong Kong stock exchange.
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