5/31/2017, 1:37 PM (Source: TeleTrader)
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Fitch sees rising risks in Baidu's financial services

Long-term credit default ratings of search giant Baidu Inc. in foreign and local currencies are under negative watch, Fitch Ratings revealed on Wednesday, citing "rapid growth" in activities of the Chinese company's wholly-owned Financial Services Group (FSG). The risk profile in the segment is meaningfully stronger than in the core businesses, analysts said.

Fitch noted management needs to shed more light on "expansion plans, risk control policies and procedures, and capital structure." The potential downgrade is likely one notch, the press release adds and acknowledged Baidu has a strong net cash position. The current rating is A.

"FSG sells wealth management products (WMPs), which are mostly fixed-income products with short tenors of up to 12 months, and operates a micro-lending business. Baidu's wealth management business is similar to that of many Chinese banks and WMPs are part of the shadow banking system in China. As with Chinese banks, Baidu does not need to set aside large capital against potential defaults on its WMPs," the note said. According to the analysis, failing to achieve target returns may damage the company's reputation. FSG's assets were more than doubled in the first quarter of this year alone.

Baha Breaking News (BBN) / IT