December 22, 2016 / 9:52 AM / 9 months ago

Fitch Rates SFund's Tap Issuance of USD Bonds Final 'A-'

(The following statement was released by the rating agency) HONG KONG, December 22 (Fitch) Fitch Ratings has assigned GUANGZHOU Silk Road Investment Limited's USD30m 3.85% bonds due 2021 a final rating of 'A-'. The bonds are unconditionally and irrevocably guaranteed by the issuer's ultimate parent company, Guangzhou Industrial Investment Fund Management Co., Ltd. (SFund, A-/Stable). This tap issuance carries the same terms and conditions as the earlier issuance of USD200m of 3.85% bonds due 2021. The offshore bonds are rated at the same level as SFund's Issuer Default Rating, as they represent its direct, unsubordinated, unconditional and unsecured obligations. The final rating follows the receipt of documents confirming to information already received and is in line with the expected rating assigned on 18 December 2016. KEY RATING DRIVERS Linked to Guangzhou Municipality: The ratings of SFund are credit-linked to, but not equalised with, those of Guangzhou municipality. The link reflects strong government control and oversight, mid-range strategic importance to the municipality, integration with the government budget and legal status. These factors result in a high likelihood of extraordinary support, if needed, from the municipality. Therefore, SFund is classified as a credit-linked public-sector entity under Fitch's criteria. Guangzhou's Creditworthiness: Guangzhou municipality is generally considered a first-tier city in China. Its gross regional product ranks third among all Chinese cities, just behind Beijing and Shanghai. The municipality has a strong fiscal performance, diversified socio-economic profile and is located strategically in the heart of the Pearl River Delta in southern China. Legal Status Attribute Mid-Range: SFund is registered as a limited liability company under Chinese company law. It is wholly owned by the Guangzhou municipal government. Strategic Importance Attribute Mid-Range: SFund is an important investment platform set up by the government to promote public-private partnerships and invest in the city's strategic and emerging industries. It also participates in the urban development of Guangzhou and some less-developed cities in Guangdong Province on behalf of the Guangzhou municipal government. Control and Supervision Attribute Stronger: SFund is supervised by the Guangzhou State-owned Assets Supervision and Administration Commission. Its policy-driven investment projects need to be approved by the relevant government departments. Furthermore, it is subject to regulations and supervision of the China Securities Regulatory Commission. SFund's chairman and supervision committee are appointed by the government. Government Integration Attribute Mid-range: SFund has been receiving equity injections and capital contributions for assets-under-management from the Guangzhou municipal government since its inception in 2013. It received CNY950m in 2013, CNY6.82bn in 2014 and CNY6.46bn in 2015. The Guangzhou municipal government has also entrusted the fund CNY800m a year for the past three years to be invested in strategic local industries. In addition, the Guangzhou government has guaranteed the return of the supporting funds that were established with the Qingyuan and Meizhou governments and managed by SFund at 7.5% a year. Robust Standalone Profile: SFund's operating revenue and balance sheet have expanded rapidly since 2013 due to investments made upon receipt of capital injections from the government and other parties, such as insurance companies, into its funds. The company is currently primarily financed by equity and is looking to diversify its funding sources. RATING SENSITIVITIES Credit-Linked to Municipality: A stronger or more explicit support commitment from Guangzhou municipality may trigger positive rating action on SFund. Significant weakening of SFund's strategic importance to the municipality, reduced government support or a diluted government shareholding could result in a downgrade. Creditworthiness of Municipality: An upgrade of Fitch's internal credit view on Guangzhou municipality may trigger positive rating action on SFund. Negative rating action on SFund could derive from a deterioration of Fitch's internal assessment of the municipality's creditworthiness. Rating action on SFund would lead to similar action on the US dollar bonds. Contact: Primary Analyst Jean Luo Associate Director +852 2263 9952 Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road Central Hong Kong Secondary Analyst Lin Pei Associate Director +852 2263 9912 Committee Chairperson Christophe Parisot Managing Director +33 1 44 29 91 34 Date of Relevant Rating Committee: 17 November 2016 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria International Local and Regional Governments Rating Criteria - Outside the United States (pub. 18 Apr 2016) here Rating of Public-Sector Entities - Outside the United States (pub. 22 Feb 2016) here Additional Disclosures Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. 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