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      Scope revises China's Outlook to Stable from Negative, affirms ratings at A+

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      FRIDAY, 09/07/2021 - Scope Ratings GmbH
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      Scope revises China's Outlook to Stable from Negative, affirms ratings at A+

      Improvements in financial stability, transitions from high growth targets, resilience amid Covid-19 crisis and internalisation of the renminbi support revision of the rating Outlook. Rising public and non-financial sector debt remain ratings challenges.

      For the rating action annex, click here.

      Rating action

      Scope Ratings GmbH (Scope) has today affirmed the People’s Republic of China's long-term local- and foreign-currency issuer and senior unsecured debt ratings at A+ and revised Outlooks to Stable, from Negative. The Agency has also affirmed the short-term issuer ratings at S-1+ in both local- and foreign-currency and revised the Outlooks to Stable, from Negative.

      Rating drivers

      The revision of the Outlook assigned to China’s A+ long-term credit ratings to Stable, from Negative, reflects:

      1. Advancements in financial-system reform and reduced financial-system risks. This includes policymakers’ attention on redressing elevated rates of credit growth and bubble risk and allowance of record corporate defaults, cutting off unproductive firms from state support and, concurrently, facilitating the development of China’s financial markets and opening of the capital account. Financial-system risks have also eased given authorities’ stepwise departure from high economic growth objectives. Such reforms ease debt risks and increase the likelihood of an ongoing ‘soft’ rather than ‘hard’ landing to China’s significant private and public debt accrual since the global financial crisis. In addition, economic and financial-system resilience demonstrated amid the present Covid-19 crisis strengthens an assessment of China’s resilience during future globally-relevant economic downturns.
         
      2. Anticipated longer-run gains by renminbi as a global reserve currency – with gradual enhancements of safe-haven status expected to increase over time the government’s and economy’s respective capacities to manage higher debt stocks while also enhancing resilience of the currency and Chinese economy under global recessionary and/or risk-off market conditions with associated strengthening of the stability of China’s external sector.

      The affirmation of China’s A+ credit ratings is supported by the economy’s external resilience, underpinned by high foreign-exchange reserves and low external debt. Moreover, trend growth of China’s large and diversified economy remains very high compared with that of similarly rated sovereign peers, even as China’s growth potential moderates towards a 5% rate over the medium run. Furthermore, the government holds unique scope to facilitate effective reforms as well as capacity to maintain economic and financial stability when dealing with longer-term as well as fresh economic and social challenges – the latter as observed via strong policy action taken during this global public-health crisis.

      However, significant structural public-sector deficits as well as an increasing public-sector debt stock over the long run remain prevailing credit challenges, exacerbated by fiscal and monetary easing adopted to cushion China’s economy against sequential shocks. In addition, a high and rising level of total non-financial sector debt since 2008 represents a core challenge, although the trajectory of this increase of non-financial system debt has importantly moderated due to policymaker actions.

      The Stable Outlook represents Scope’s opinion that risks to the sovereign ratings are balanced over the forthcoming 12-18 months.

      The ratings could be downgraded or the Outlooks returned to Negative if, individually or collectively: i) the fiscal outlook weakens, via large fiscal deficits and increasing public-sector debt ratios; ii) non-financial sector debt ratios rise beyond current expectations after this current global crisis, threatening longer-run financial stability; and/or iii) China’s external resilience weakened meaningfully, for example, via capital outflows, a weakened current account and/or stalling of internationalisation of the renminbi. Conversely, the ratings/Outlooks could be upgraded if: i) economic and financial reforms accelerate, including continued transition from ‘hard’ growth objectives towards emphasising instead the quality of growth and supporting economy-wide deleveraging; ii) significant consolidation of the fiscal deficit enhances sustainability of China’s public debt outlook; and/or iii) the renminbi makes substantive gains as a reserve currency.

      Rating rationale

      Firstly, the revision of the Outlook to Stable from Negative on China’s A+ credit ratings reflects financial-system reform and policy actions that have enhanced system-wide resilience and increased likelihood of a ‘soft’ rather than ‘hard’ landing to China’s significant debt accrual since the global financial crisis.

      Since 2018, Chinese President Xi Jinping has emphasised addressal of financial-system risk as one of “Three Critical Battles” of China. This setting of anchoring financial stability as one of the core state objectives has seen extensive supervisory, regulatory and policy changes. More restrictive financial-regulatory policies have been adopted, including fresh rules to reduce regulatory arbitrage, establishment of new government agencies for antitrust and intellectual property rights protection, and inception of the Financial Stability and Development Commission to intermediate between financial supervisors. Coordination among financial regulators has been improved by merger of financial and insurance sector regulators. Oversight of shadow banking and FinTech has been enhanced plus new rules introduced with respect to liquidity risk management of commercial banks. The Chinese government’s commitment and capacity to reform, as exemplified by these changes, remain important credit strengths.

      Extensive supervisory and regulatory changes have also been intensified since the Covid-19 economic crisis with the People’s Bank of China (PBOC) laying out defined priorities in the period to 2025 that include improvement of the macro-prudential assessment framework and strengthening supervision of “systemically important” institutions, businesses and infrastructure. Under the same timetable, China has continued opening of its domestic financial system, including freeing up of stock and bond markets for foreign investor entry and opening to international credit rating agencies to enhance appraisal of stand-alone credit risk in debt capital markets to reduce expectation of state support when issuers enter financial difficulty. This continued opening of the Chinese capital account also abets a corresponding objective of internationalisation of the renminbi, alongside establishing more extensive access to more stable foreign capital forms such as pension and insurance fund inflows, reducing dependence on hot money. In respect to monetary policy, the central bank has sought to hold growth of money supply and aggregate financing to develop in line with growth of nominal GDP, whilst stemming risk as associated with unsustainable debt growth and financial system bubbles. China has been the inaugural major global economy to tighten policies since the Covid-19 crisis, leveraging, moreover, the Chinese state’s comparative strengths via controls it holds over the domestic credit system – although policies have pivoted somewhat of recent to provision of more liquidity to the economy, such as via a reserve requirement cut, as growth cools and smaller firms struggle with rising commodity prices. Aggregate social financing, a broad measure of credit and liquidity in the economy, rose 9.5% YoY in May – reduced from August 2020 peaks of 12.6%, as the central bank provided guidance in private discussions with banks to rein in loan growth. Intra-financial system lending has been reduced to -6.4% YoY in May 2021, from 4.0% as of April 2020 and more than 70% YoY as of early 2016. China’s deleveraging ambitions include those that target the overheated property sector – an ongoing source of financial risk – with new-home prices in 100 Chinese cities increasing a still-elevated 11.3% YoY rate as of May 2021.

      As authorities seek enhanced financial-sector discipline, transparency and market-based price dynamics, Chinese corporates have defaulted on onshore bonds at the fastest pace on record in 2021 – a development Scope expects to endure, due in part to higher financing costs fuelled by regulatory crackdown of riskier forms of lending. 2021 represents a fourth consecutive year during which a RMB 100bn level has been topped for onshore defaults during a calendar year (after only RMB 27bn in 2017), with recent crisis surrounding bad debt manager China Huarong Asset Management raising enquiries about state support for even central state-owned enterprises (SOEs). Under Scope’s view, policymaker emphasis on facilitating reappraisal in markets of the stand-alone fundamentals of issuers, guiding a process of managed borrower default without tolerating cascading to systemic risk, supports reduction of moral hazard, reduces the fiscal cost for the general government and abets maturation of China’s financial system. This development of the Chinese financial system via heightened regulatory attention on anchoring financial stability is credit positive, reducing risks associated with past large-scale debt accrual as well as the further stress applied to borrowing institutions during the pandemic.

      The re-anchoring of financial stability and combating of systemic debt risk have been achieved by virtue of steps taken that depart from China’s legacy of elevated, above-potential ‘hard’ growth objectives, which have historically precipitated requirement of fiscal and monetary accommodation to reach state targets – accentuating simultaneously longer-run macroeconomic imbalances. In 2020, China opted not to set a growth objective for the calendar year for the first time since the government began publishing growth objectives in 1990 – given also uncertainties surrounding the impact of Covid-19 on economic output in 2020. In 2021, China defined a manageable growth objective of “over 6%” – achievable as the government continues piecemeal reorientation from pursuit of quantity to that of the quality of economic growth. The latest Five-Year Plan outlined in the October 2020 Central Committee plenary session defined a vision of doubling the size of Chinese GDP by 2035, implying more sustainable average growth demands of around 4.5% per annum between 2022-35 if one assumes 2021 growth of 9.3% (Scope Ratings’ estimate). Scope has in the past identified steps to eliminate ‘hard’ growth objectives as critical to improving productivity growth and reducing financial-system risk.

      In addition, resilience demonstrated within the economy and financial system over this Covid-19 crisis supports the Outlook revision. This resilience anchors an improved appraisal of China’s resilience over future globally-relevant economic downturns.

      Despite having been the country first severely impacted by the SARS-CoV-2 virus, stringent implementation and national observation of lockdown regulation and associated sharp curtailment of coronavirus cases since early 2020 peaks allowed gradual and sustained reopening of the Chinese economy since February 2020. Sporadic transmission of virus since last February has been managed with localised restriction and testing and tracing – although virus outbreaks in some areas of the country have brought about recent slowdown in services sector output. Due to China’s V-shaped economic recovery, an outlier under a global comparison amid multiple virus waves and sequential lockdowns in peer nations around the world, Scope expects calendar-year growth in China of 9.3% in 2021 (with Chinese output having reached pre-crisis trend output levels by Q4 2020). China is seen accounting for nearly a third of growth globally this year. An elevated recovery rate of economic growth this year comes after 2.3% positive growth during 2020 crisis peaks. Importantly, economic resilience has, moreover, been achieved with a simultaneous degree of fiscal restraint as compared with the budget policies of peer economies, given China’s pre-existing concentration on debt risk. 2022 Chinese growth is forecast at a closer-to-trend rate of 5.4%. The rebound of the economy has also helped manage unemployment rate dynamics – with Scope expecting urban survey-based unemployment to moderate to 5.2% over 2021 and 5.1% in 2022, compared with 5.6% in 2020 (5.1% pre-crisis in 2019).

      The Chinese financial system has similarly demonstrated resilience over this crisis, in view of the scale of concerns entering this crisis surrounding financial stability under stressed scenarios of global recession. In the first half of 2019, the PBOC examined 30 medium- and large-sized Chinese banks, determining more than 13% of 4,379 overall lenders to be considered under categorisation of “high risk”.1 Under a worst-case scenario in the supervisor’s examination, which assumed slowdown in China’s real economic growth rate to 4.15% (from 6.7% in 2018), 17 of the major banks failed the PBOC exam – questioning the health of bank balance sheets under scenario of even an easing of elevated credit generation and economic growth. On this basis, Scope assesses constructively comparative resilience in the Chinese financial system since the 2020 crisis despite growth slowdown to 2.3% with none of the 30 stress-tested banks having entered default since Covid-19 (although two missed payments in 2019). Tier 1 capital of the Chinese banking system has been raised to 11.9% of risk-weighted assets in Q1 2021, from an inadequate 9.9% as of 1H-2013. In addition, financial resilience has been anchored since 2020 by policymaker measures such as liquidity facilities, reductions of rates and reserve requirements, measured forbearance and credit guarantee schemes – tools that will remain in China’s toolbox, with policy lessons from this crisis expected to, furthermore, make China better prepared during future economic downturns.

      The second driver of the revision of the rating Outlook to Stable, from Negative, is the internationalisation of the renminbi, after the Chinese government started to promote global use of the currency around year 2010.

      The internationalisation of the renminbi has witnessed the currency becoming the fifth most important currency with respect to international payments2. The renminbi observed inclusion in the IMF’s Special Drawing Rights basket of currencies (now with five currencies) since October 2016 and the establishment of a new renminbi-denominated Shanghai oil futures market in March 2018. The share of yuan claims in total global allocated FX reserves rose to 2.4% as of Q1 2021, from 1.1% in Q1 2017. Nevertheless, a very significant outstanding gulf between reserves held in yuan compared with shares for the US dollar and euro still exists and advancements in yuan’s international use have slowed under metrics such as usage in trade settlement or issuance of renminbi-denominated bonds offshore. China is activating a digital currency — the Digital Currency/Electronic Payment. This further improves ease of use of renminbi under international transactions, and the payments system also has capacity to bypass the SWIFT system of international payment. As the renminbi becomes more internationally accepted, other smaller and developing countries that hold strong trade and financial links with China may start to invoice and settle trades in yuan. Here, China’s steps in opening the capital account, allowing the FX to trade more freely and developing its financial markets, including modernisation of monetary policy and enhancing financial stability, anchor an increased role for renminbi over the long term. Under Scope’s view, the long-run internationalisation of the renminbi is credit positive, stepwise channelling to China benefits of a safe-haven currency status such as enhanced resilience during international financial crises, as observed to an extent since this Covid-19 crisis, greater monetary and fiscal space and capacity for higher levels of debt, and a more resilient external sector, including easing risk exposure to periods of capital outflows.

      China’s A+ ratings are anchored by a diversified and competitive economy that is the second largest globally with nominal GDP of USD 16.6trn in 2021 plus a macroeconomic track record that has seen the transformation of the Chinese economy since market-oriented reforms began in 1978. Scope, moreover, considers China’s strong external sector as further supportive of the ratings. China’s current account surplus improved short term to 2.4% of GDP in the year to Q1 2021, from a 2018 balance of 0.2%. Nonetheless, the current account has weakened over a longer horizon in line with rebalancing of the Chinese economy from manufacturing towards services after the peak current account surplus of 9.9% of GDP in 2007. Despite ongoing trade and investment disagreements with the United States, Scope notes that China has championed greater trade openness and multilateralism, including via the continued lowering of tariffs on consumer goods and automobiles and increasing of imports. This was demonstrated in the Comprehensive Agreement on Investment with the European Union in December 20203.

      Foreign-exchange reserves amounted to USD 3.21trn in June 2021, representing a recovery on USD 3.06trn at March 2020 lows. China’s reserve stock, however, while still accounting for 24% of all global FX reserves, remains weakened compared with a peak at USD 3.99trn in June 2014. While China’s still-sizeable reserves remain a significant credit strength, the lower outstanding level, alongside possible future drops as capital outflow pressures have accentuated since mid-2020, weakens resilience. Domestic institutions constituting still a majority of investors in China’s bond markets increases resilience in global financial shocks, as moreover anchored by low levels of external debt of 16% of GDP.

      Against these credit strengths, multiple challenges constrain China’s ratings at the A+ level.

      While Chinese fiscal loosening amid the global public-health crisis has been more restrained (as compared with the scale of response of peer economies during this crisis or China’s budget response to the global financial crisis), with RMB 4.9trn (4.7% of GDP) of discretionary fiscal measures announced since 2020, China’s general government deficit nonetheless increased to 11.4% of GDP in 2020, from 6.3% in 2019, and compared with only 0.9% of GDP as of 2014. In 2021, Scope expects the general government deficit to remain sizeable (9.5% of GDP this year, before 8.6% of GDP in 2022). In addition, the IMF calculates an ‘augmented net lending/borrowing’ metric for China, including infrastructure expenditure financed by off-balance-sheet local government financing vehicle (LGFV) debt. This augmented deficit was estimated by the IMF at an elevated 18.2% of GDP in 2020, an increase on an augmented deficit of 12.6% of GDP in 2019 and 7.2% of GDP as of 2014. Authorities have taken steps to cut links between local governments and LGFVs and argue LGFV spending ought not be included in general government fiscal metrics. However, Scope considers both augmented and non-augmented general government net lending/borrowing metrics in its ratings assessments to account for liabilities that may migrate to the general government balance sheet under stressed scenarios. While there have been isolated (although rising) examples of LGFVs missing debt payments since 2018, unmet coupon or principal payments were frequently made whole shortly after default events with the contingent support of regional and local governments. Moreover, in Scope’s opinion, the government’s tolerance for allowing more widespread bankruptcy events in the LGFV sector remains low, owing to associated systemic consequences for financial stability and economic development.

      Under a narrower definition, China’s general government debt totalled an estimated 66.8% of GDP in 2020. In view of primary deficits expected over the medium term, offset in part by a highly favourable growth-interest rate differential, China’s debt ratio under the general government definition is projected to increase to over 86% of GDP by 2026. However, including the debt of LGFVs and other off-budget entities, the IMF alternatively estimates the government’s ‘augmented debt’ stood already at an elevated 91.7% of GDP in 2020. Augmented debt is projected to rise to 115.9% of GDP by 2026, according to the IMF. Scope notes significant risks related to China’s rising debt ratios. However, while augmented general government debt metrics are high and increasing, central government debt – the rated segment of sovereign debt by Scope – amounted to only 19.8% of GDP as of Q1 2021 – only slightly increased over recent years, as the state has sought to keep debt off central government books. In addition, central government debt holds an average maturity of over seven years, with almost all central government debt domestically issued in local currency.

      Moreover, risks stem from high and increasing levels of economy-wide debt as well as leverage in the banking system. Banking system assets amounted to 311% of GDP in Q1 2021, from 192% in Q3 2008. The size of China’s banking system is above an advanced economy average and much higher than an emerging market average. While China’s debt levels are not uncommon in highly rated countries, they are less frequent in countries with China’s per-capita income and financial market depth. The non-financial sector debt ratio of China resumed an increasing trajectory since 2019 after a temporary pause over 2018, reaching a level of 289.5% of GDP as of Q4 2020, according to Bank for International Settlements data. This compares with 139% of GDP as of Q4 2008. The IMF foresees non-financial sector debt rising to 297% by 2025 from 277% of GDP at end-2020 under its calculations. Significant debt increases over a short time such as in China’s example since 2008 have been associated with sharp growth slowdowns and, frequently, financial crises over economic history. Significant supervisory and regulatory actions have been taken by authorities to address debt risks and support a soft landing – especially in the corporate and financial sectors. Corporate debt amounted to 160.7% of GDP in Q4 2020, fairly unchanged compared with the 159.5% of GDP level as of Q4 2016 (with much of this debt linked to SOEs). China’s corporate debt stock represents nonetheless the largest nominal stock on a global basis. Debt has been increasing in the general government and household sectors, with the latter having seen its debt ratio increase to 62% of GDP in Q4 2020, more than tripling compared with a low base of 18% of GDP as of 2008 – propelled by China’s financial-sector development and changes of consumer behaviour.

      Core Variable Scorecard (CVS) and Qualitative Scorecard (QS)

      Scope’s Core Variable Scorecard (CVS), which is based on the relative rankings of key sovereign credit fundamentals, provides a first indicative rating of ‘bbb+’ for the People’s Republic of China. China receives a one-notch uplift to this indicative rating via the reserve currency adjustment under the methodology. As such, under the methodology, ‘a-’ final indicative ratings can be adjusted by the Qualitative Scorecard (QS) by up to three notches, depending on the size of relative credit strengths or weaknesses versus peers based on analysts’ qualitative analysis.

      For China, the following relative credit strengths are identified: i) growth potential of the economy; ii) monetary policy framework; iii) macro-economic stability & sustainability; iv) debt profile and market access; v) current account resilience; vi) external debt structure; vii) resilience to short-term external shocks; and vii) banking sector oversight. Relative credit weaknesses are signalled for: i) fiscal policy framework; ii) financial imbalances; and iii) environmental risks.

      The combined relative credit strengths and weaknesses generate a two-notch upward adjustment and signal a sovereign credit rating of A+ for China.

      A rating committee has discussed and confirmed these results.

      Factoring of Environment, Social and Governance (ESG)

      Scope explicitly factors in ESG sustainability issues during its ratings process via the sovereign methodology’s stand-alone ESG sovereign risk pillar, with a 20% weighting under the quantitative model (CVS) as well as in the qualitative overlay (QS). Under governance-related factors in the CVS, China has traditionally scored weakly on the World Bank’s Worldwide Governance Indicators. Power consolidation achieved by President Xi Jinping, even if it bolsters reform momentum near term, holds credit-negative implications over the longer run, in Scope’s view, potentially undermining the delicate collective leadership structure underpinning the decades of China’s economic miracle, and reducing the quality of governance and policymaking over the long run. For China, governance-related qualitative assessments are reflected in Scope’s QS evaluation of ‘neutral’ on ‘institutional and political risks’ as compared with dynamics of its ‘a-’ indicative sovereign peer group.

      Socially related credit factors are similarly captured under Scope’s CVS quantitative model and QS qualitative overlay. In the CVS model, China scores moderately on the basis of quantitative assessments of income inequality (as measured through the ratio of the income share of the 20% of persons with the highest household incomes to the 20% of persons with the lowest household income), labour force participation rates (66.8% as of end-2020, compared with 68.2% a year before), and old-age dependency ratios, the latter which represents a growing challenge although China scores comparatively healthier than many advanced economies. Against steep declines in birth rates and an ageing population (annual working-age population growth of -0.1% over 2021-25), China announced in May 2021 it will allow couples to have up to three children. China’s middle-income economic status (GDP per capita of USD 11,819 in 2021) and comparatively low level of unemployment are likewise considered under the CVS. Significant social progress has been achieved, including the lifting of over 850 million citizens from absolute poverty and significant strides made in education and health. In addition, there have been positive policy shifts toward a greater concentration on the quality of economic growth and citizens’ lives, including priorities on boosting social safety nets and reducing income inequality. However, delayed early responses to the SARS-CoV-2 virus show residual deficits in China’s preparedness for major public health crises – as represented in average scores on the 2019 Global Health Security Index. In addition to the CVS, social considerations are taken into account under Scope’s QS evaluation of China’s ‘social risks’ as ‘neutral’ compared with peers.

      With respect to environmental risk – China scores poorly on the CVS on carbon emissions per unit of GDP but scores well comparatively on exposure and vulnerability to natural disaster risk – the latter as measured via the World Risk Index. China’s marks are, moreover, moderate under the CVS on the ecological footprint of its consumption compared with its available biocapacity. China’s poor record on environmental issues has improved over recent years. This includes introduction of the Air Pollution Action Plan, which has helped to dramatically reduce PM2.5 levels in major metropolitan areas. China is the world’s largest emitter of carbon dioxide (accounting for around 28% of global CO2 emissions); however, meaningful progress is also being made in cutting the carbon intensity of the economy with China pledging overall emissions to peak by around 2030 with an ambitious objective of carbon neutrality before 2060. China’s announcements are seen as significant steps forward in the global fight against climate change. Beijing seeks one-fifth of its energy needs to be met via non-fossil fuel sources by 2030. In 2017, China launched a nationwide carbon emissions trading system for large industrial users. Nevertheless, China’s significant green transition costs as policymakers move towards more sustainable growth are considered within Scope’s QS with an assessment of ‘weak’ on ‘environmental risks’ compared with China’s ‘a-’ indicative sovereign peer group.

      Rating Committee
      The main points discussed by the rating committee were: i) financial-system reform and financial stability; ii) hard economic growth targets; iii) resilience amid Covid-19 crisis; iv) internationalisation of the renminbi; v) corporate-sector defaults; vi) public debt and local government financing vehicles; vii) ESG risks; and viii) sovereign peers considerations.

      Rating driver references
      1. People’s Bank of China, 2019 China Financial Stability Report 
      2. SWIFT, RMB Tracker Monthly reporting and statistics on renminbi (RMB) progress towards becoming an international currency, June 2021
      3. European Commission, EU and China reach agreement in principle on investment 

      Methodology
      The methodology used for these Credit Ratings and/or Outlooks, (Rating Methodology: Sovereign Ratings, 9 October 2020), is available on https://www.scoperatings.com/#!methodology/list.
      Scope Ratings GmbH and Scope Ratings UK Limited apply the same methodologies/models and key rating assumptions for their credit rating services, while Scope Hamburg GmbH’s methodologies/models and key rating assumptions are different from those of Scope Ratings GmbH and Scope Ratings UK Limited.
      Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other Services’, published on https://www.scoperatings.com/#!governance-and-policies/rating-scale. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://www.scoperatings.com/#governance-and-policies/regulatory-ESMA. Also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope Ratings’ definitions of default and Credit Rating notations can be found at https://www.scoperatings.com/#governance-and-policies/rating-scale. Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on https://www.scoperatings.com/#!methodology/list.
      The Outlook indicates the most likely direction of the Credit Ratings if the Credit Ratings were to change within the next 12 to 18 months.

      Solicitation, key sources and quality of information
      The Credit Ratings were not requested by the Rated Entity or its Related Third Parties. The Credit Rating process was conducted:
      With Rated Entity or Related Third Party Participation NO
      With Access to Internal Documents                              NO
      With Access to Management                                        NO
      The following substantially material sources of information were used to prepare the Credit Ratings: public domain.
      Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting these Credit Ratings originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
      Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Ratings and/or Outlooks and the principal grounds on which the Credit Ratings and/or Outlooks are based. Following that review, the Credit Ratings were not amended before being issued.

      Regulatory disclosures
      These Credit Ratings and/or Outlooks are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and/or Outlooks are UK-endorsed.
      Lead analyst Dennis Shen, Director
      Person responsible for approval of the rating: Alvise Lennkh, Executive Director
      The Credit Ratings/Outlooks were first released by Scope on 29 September 2017. The Credit Ratings/Outlooks were last updated on 28 February 2020.

      Potential conflicts
      See www.scoperatings.com under Governance & Policies/EU Regulation/Disclosures for a list of potential conflicts of interest related to the issuance of Credit Ratings.

      Conditions of use / exclusion of liability
      © 2021 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Analysis GmbH, Scope Investor Services GmbH, and Scope ESG Analysis GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data. Scope’s ratings, rating reports, rating opinions, or related research and credit opinions are provided ‘as is’ without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or other damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party as, opinions on relative credit risk and not a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings GmbH at Lennéstraße 5 D-10785 Berlin.

      CNGV 4.300 11/30/59 CNGV 2.650 07/14/21 CNGV 3.770 12/18/24 CNGV 3.960 07/29/40 CNGV 3.690 09/21/24 CNGV 4.120 08/02/42 CNGV 4.240 11/24/64 CNGV 4.100 09/27/32 CNGV 4.180 10/15/39 CNGV 4.480 05/26/61 CNGV 4.240 05/20/63 CNGV 3.270 11/15/21 CNGV 4.770 04/28/34 CNGV 5.310 11/18/63 CNGV 3.700 05/23/66 CNGV 3.640 04/09/25 CNGV 4.520 08/16/27 CNGV 3.550 12/12/21 CNGV 4.100 05/21/45 CNGV 3.310 11/30/25 CNGV 3.950 06/27/43 CNGV 2.360 08/18/21 CNGV 3.380 07/04/26 CNGV 4.000 11/30/35 CNGV 3.850 12/12/26 CNGV 4.150 12/12/31 CNGV 4.500 05/22/34 CNGV 3.480 06/29/27 CNGV 3.380 11/21/24 CNGV 3.600 06/27/28 CNGV 9.000 01/15/96 CNGV 7.500 10/28/27 CNGV 5.050 12/09/43 CNGV 4.260 07/31/21 CNGV 3.690 06/11/24 CNGV 4.030 04/23/32 CNGV 3.850 10/23/21 CNGV 4.030 05/24/60 CNGV 3.270 08/22/46 CNGV 3.740 09/22/35 CNGV 3.700 10/23/21 CNGV 4.110 05/15/25 CNGV 4.320 08/12/33 CNGV 4.760 09/16/43 CNGV 4.000 08/27/29 CNGV 4.400 12/12/46 CNGV 4.290 05/22/29 CNGV 4.000 05/22/24 CNGV 3.600 05/21/30 CNGV 3.900 07/04/36 CNGV 3.390 05/21/25 CNGV 3.770 02/20/47 CNGV 4.760 07/24/44 CNGV 4.350 11/15/62 CNGV 3.570 11/17/21 CNGV 3.740 10/20/45 CNGV 3.820 09/02/30 CNGV 4.020 04/09/39 CNGV 4.940 08/11/28 CNGV 4.330 11/10/61 CNGV 4.400 11/18/60 CNGV 7.200 08/20/28 CNGV 3.600 08/29/24 CNGV 4.150 04/28/31 CNGV 4.080 05/22/67 CNGV 4.050 07/24/47 CNGV 3.890 11/23/65 CNGV 3.990 05/25/65 CNGV 3.910 10/23/38 CNGV 2.900 05/24/32 CNGV 3.930 08/18/21 CNGV 4.080 03/01/40 CNGV 2.990 10/15/25 CNGV 2.740 08/04/26 CNGV 4.300 10/27/44 CNGV 2.390 10/20/21 CNGV 3.510 07/16/25 CNGV 3.590 08/03/27 CNGV 3.520 04/25/46 CNGV 2.700 11/03/26 CNGV 4.230 12/09/40 CNGV 3.700 06/26/26 CNGV 2.850 01/28/26 CNGV 4.000 06/19/24 CNGV 3.360 01/22/22 CNGV 1.640 12/15/33 CNGV 4.250 05/17/62 CNGV 4.030 06/21/40 CNGV 2.880 01/12/22 CNGV 3.860 02/19/29 CNGV 3.570 06/22/24 CNGV 2.900 05/05/26 CNGV 4.090 04/27/35 CNGV 4.500 06/23/41 CNGV 4.670 05/26/64 CNGV 4.130 09/18/24 CNGV 3.940 07/27/45 CNGV 3.960 04/15/30 CNGV 3.990 04/22/33 CNGV 3.400 02/09/27 CNGV 3.520 05/04/27 CNGV 4.070 06/28/42 CNGV 4.270 05/17/37 CNGV 4.500 05/08/38 CNGV 3.960 08/16/40 CNGV 4.630 08/11/34 CNGV 3.480 11/21/66 CNGV 4.310 02/24/41 CNGV 3.620 08/29/27 CNGV 4.280 10/23/47 CNGV 3.820 11/02/27 CNGV 3.900 12/21/24 CNGV 3.850 02/01/28 CNGV 3.770 03/08/25 CNGV 4.220 03/19/48 CNGV 3.690 05/17/28 CNGV 3.610 06/07/25 CNGV 3.970 07/23/48 CNGV 3.540 08/16/28 CNGV 3.600 09/06/25 CNGV 3.170 10/11/21 CNGV 4.080 10/22/48 CNGV 3.250 11/22/28 CNGV 3.220 12/06/25 CNGV 3.290 05/23/29 CNGV 3.250 06/06/26 CNGV 4.000 06/24/69 CNGV 2.740 07/11/21 CNGV 3.860 07/22/49 CNGV 4.150 12/04/27 CNGV 3.030 06/24/24 CNGV 3.300 07/25/21 CNGV 2.625 11/02/27 CNGV 2.940 10/17/24 CNGV 0.500 11/12/31 CNGV 1.000 11/12/39 '39 CNGV 0.125 11/12/26 '26 CNGV 0.250 11/25/30 CNGV 0.625 11/25/35 CNGV 2.750 12/03/39 CNGV 2.125 12/03/29 CNGV 1.950 12/03/24 CNGV 3.280 12/03/27 CNGV 11/25/25 CNGV 1.990 04/09/25 CNGV 3.730 05/25/70 CNGV 2.770 06/24/30 CNGV 2.710 06/19/27 CNGV 3.020 10/22/25 CNGV 3.120 12/05/26 CNGV 2.410 06/19/25 CNGV 2.850 06/04/27 CNGV 3.390 03/16/50 CNGV 2.860 07/16/30 CNGV 3.810 09/14/50 CNGV 3.130 11/21/29 CNGV 2.680 05/21/30 CNGV 2.690 11/14/21 CNGV 3.270 11/19/30 CNGV 2.470 09/02/24 CNGV 3.720 04/12/51 CNGV 2.500 09/27/26 CNGV 3.030 03/11/26 CNGV 3.010 05/13/28 CNGV 2.690 08/12/26 CNGV 3.020 05/27/31 CNGV 3.760 03/22/71 CNGV 2.500 10/26/51 CNGV 0.750 10/26/24 CNGV 0.125 11/17/28 CNGV 1.250 10/26/26 CNGV 1.750 10/26/31 CNGV 2.750 02/17/32 CNGV 2.910 10/14/28 CNGV 1.750 10/26/31 CNGV 2.260 02/24/25 CNGV 2.890 11/18/31 CNGV 0.750 10/26/24 CNGV 3.320 04/15/52 CNGV 2.480 04/15/27 CNGV 2.500 10/26/51 CNGV 0.625 11/17/33 CNGV 2.370 01/20/27 CNGV 11/17/24 CNGV 3.530 10/18/51 CNGV 1.250 10/26/26 CNGV 2.800 03/24/29

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