Fitch Ratings has commented today, in a just published report entitled "Sovereign Ownership Impact on Corporate Ratings - Asia", that whilst attention has been drawn to the issue of sovereign support due to the developments in Dubai since late 2009, the agency is comfortable with its current assessment and expectation of sovereign support when assigning Issuer Default Ratings (IDRs) for sovereign-owned entities ("SOEs") in Asia Pacific.

The report highlights that the agency's approach when analysing the parent/subsidiary relationships for SOEs is consistent with that adopted for non-SOEs in the region. Therefore, Fitch does not anticipate major systematic revisions to the expectations of state-support, which could consequently impact the ratings.

"State ownership per se is not a major ratings driver in Asia Pacific. Of the 12 fully-owned SOEs rated by Fitch, only 50% of the issuers' ratings are equalised with those of the sovereign. Instead, it is the presence of strategic, operational and legal linkages between the sovereign and the SOE, indicating the likelihood of state support, which determines the link between the sovereign's rating and that of the SOE," said Siew-Huey Loong, Director in Asia Pacific Corporates. "Through the assessment of parent/subsidiary linkages, sovereign support has been factored into 71% of the SOEs' ratings, but limited benefit has been given even in these cases," added Ms. Loong.

In Asia Pacific, 16 of the 55 SOEs under coverage are rated on a standalone basis, with no benefit given for state linkage. Of these, the ratings of five SOEs are actually constrained due to lower ratings of their sovereign parents. Fifteen of the 55 issuers receive a limited number of notches (typically one or two notches) up from the SOE's standalone profile. Five are notched down (typically two to three notches) from the sovereign ratings, whereas 19 of the rated SOEs have their ratings equalised at the sovereign parent rating level. Where the SOE ratings and the sovereign ratings are equalised and/or when the agency adopts a top-down approach, it indicates the presence of strong strategic, legal or operational linkages as well as evidence of tangible support. The report provides case studies of how the assessment of these linkages and tangible support are factored into ratings, for example China Petroleum & Chemical Corporation (Sinopec, 'A-'/Stable) and Aluminium Corporation of China Limited (Chalco, 'BBB+'/Stable).

In addition, Fitch notes that where legal, operational and strategic ties justify linkage between the rating of the SOE and the sovereign rating, it is important to understand that the approach (whether top-down, bottom-up or standalone) and the extent of notching can vary over time. The likelihood of support may be dynamic, as the strategic and operational significance of an SOE to the sovereign may evolve over time and affect a sovereign's willingness to provide support to the SOE. A sovereign's ability to support, both in terms of its absolute and relative credit profile when compared with the stand-alone profile of the SOE, is also taken into consideration when determining whether state support should be reflected in the SOE's ratings.

The report titled "Sovereign Ownership Impact on Corporate Ratings - Asia" replicates a similar analysis undertaken for the EMEA (Europe, Middle East and Africa) corporate universe, the findings of which were published in the reports "Sovereign Ownership Impact on Corporate Ratings", dated 25 June 2009 and "Update: Sovereign-Owned Corporate Ratings in EMEA", dated 4 December 2009. However, the Asia report also highlights some key differences between SOEs in the two regions.

Applicable Criteria is available on Fitch's website at www.fitchratings.com. Fitch has used the master criteria 'Corporate Rating Methodology' dated 27 November 2009.