The FINANCIAL -- Fitch ratings has on August 16 removed AIG Finance (Hong Kong) Ltd.'s (AIG Finance) Long-term local currency Issuer Default Rating (IDR) of 'BBB' from Rating Watch Evolving (RWE) and placed it on Positive Outlook.

"At the same time, Fitch has downgraded AIG Finance's Short-term local currency IDR to 'F2' from 'F1', and affirmed its Individual rating at 'D' and Support rating at '2'," Fitch reported.

The Outlook revision follows the announcement on 12 August 2009 that AIG Finance would be sold by American International Group Inc. (AIG, 'BBB'/RWE) to China Construction Bank (Asia) (CCB Asia, the wholly-owned Hong Kong subsidiary of China Construction Bank Corporation, 'A'/Stable) at a price of roughly 0.5x book value; as part of the deal, AIG Finance will use its cash reserves to repay USD557m in borrowings from AIG on completion of the transaction expected in October 2009. Initially at least, AIG Finance is expected to remain a stand-alone legal entity wholly owned by CCB Asia. Its portfolio of credit card and other consumer loans should complement CCB Asia's existing business in corporate banking and residential mortgages.

Since AIG fell into financial difficulties in mid-2008, AIG Finance has relied upon liquidity support from the group (in turn provided by the US Government) and has also been managing down its loan portfolio to preserve liquidity. CCB Asia's purchase of AIG Finance should ensure the longer-term viability of its financials and business, hence the Positive Outlook placed on its IDR.

At the same time however, Fitch has downgraded AIG Finance's Short-term local currency IDR to 'F2' from 'F1'. Previously, AIG Finance's short-term IDR was predicated on its very substantial cash holdings as provided by AIG , whose short-term liquidity needs were in turn supported by the US government. On its sale to CCB Asia, AIG Finance's cash holdings will be substantially reduced and it will no longer benefit from indirect US government support.

AIG Finance maintained a good operating performance and financial profile in the first half of 2009. While the economic downturn in Hong Kong saw net charge-offs rise to 4.7% (annualised), they still remained manageable. Meanwhile, it maintained low leverage as per its equity/loan ratio of 23.1% at 30 June 2008.

Related Stories

• Nicolas Burnet appointed Chief Financial Officer of Global Life business
• Preventing or delaying dementia
• ING posts 2011 underlying net profit of EUR 3,675 million