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Fitch Affirms China Communication Construction Company at 'A-'/Stable
January 11, 2017 / 6:21 AM / 6 months ago

Fitch Affirms China Communication Construction Company at 'A-'/Stable

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(The following statement was released by the rating agency) HONG KONG, January 11 (Fitch) Fitch Ratings has affirmed China Communications Construction Company Limited's (CCCC) Long-Term Foreign Currency Issuer Default Rating (IDR) and senior unsecured rating of 'A-'. The Outlook on the IDR is Stable. Fitch has notched the IDR two levels below China's Long-Term IDR of 'A+' with a Stable Outlook - in line with the agency's top-down approach in its Parent and Subsidiary Linkage rating criteria - to reflect CCCC's strong operational and strategic ties with the Chinese government through its 63.83% parent, China Communications Construction Group (CCCG). The latter is 100%-owned by the State-owned Assets Supervision and Administration Commission (SASAC). CCCC accounts for almost all of CCCG's assets and revenue. The Stable Outlook reflects Fitch's expectation of continued state support for CCCC. KEY RATING DRIVERS Strategic Position Unchanged: CCCC has maintained its monopoly position in China's maritime engineering and construction (E&C) field in 2016. In addition, CCCC is strategically important to the Chinese government's push to strengthen China's competitiveness in global E&C markets. CCCC is one of the largest participants in China's One-Belt One-Road (OBOR) foreign-policy initiative, with 21% of new contracts coming from overseas in 1H16. The company is also a strategic vehicle used by the government in its transportation development plans. It is China's largest planner and designer of roads and bridges, and a major participant in planning and setting E&C standards for China's national highway system. Steady Profitability: CCCC's revenue growth has slowed to 4% in the first nine months of 2016 (9M16, versus 10% in 2015), caused by the impact from VAT reform. However, the gross margin was maintained at 13%, thanks to the higher contribution from overseas and investment projects. Fitch expects the company to maintain the EBITDA margin at around 8% in 2016 and 2017. Revenue Coverage Remains Strong: New contract growth has accelerated (by 10% 9M16; 7% 2015). The increase in investment and overseas projects has offset the fall caused by decreased fixed-asset investment (FAI) in highway and port construction. New contracts in investment projects and overseas projects grew at 86% and 31% yoy, respectively, with new port contracts declining by 27% and road and bridge down by 4%. We estimate that the backlog/revenue ratio had remained at around 2.5x by end-3Q16. KEY ASSUMPTIONS Fitch's key assumptions within our rating case for the issuer include: - Revenue growth to remain at around 9%-13% between 2016 and 2018 - EBITDA margin to remain at around 8.0% between 2016 and 2018. RATING SENSITIVITIES Positive: Developments that may, individually or collectively, lead to positive rating action include: - Positive rating action on the Chinese sovereign - Strengthening linkage between CCCG and the Chinese sovereign. Negative: Developments that may, individually or collectively, lead to negative rating action include: - Negative rating action on the Chinese sovereign - Weakening linkage between CCCC and CCCG - Weakening linkage between CCCG and the Chinese sovereign. For China's sovereign rating, Fitch outlined the following sensitivities in its rating action commentary on 21 November 2016: The main factors that individually or collectively could lead to rating action are: Positive - Greater confidence that the debt problem in the broader economy can be resolved without a major negative impact on growth or financial stability. - More evidence that the economy can rebalance smoothly without experiencing a disruptive "hard landing". - Widespread adoption of the Chinese yuan as a reserve global currency. Negative - A continuation of policy settings that result in a further build-up of the economy's imbalances and vulnerabilities. - An adverse macroeconomic or financial shock that weakens medium-term growth prospects or affects public finances. - Sustained capital outflows sufficient to erode China's external balance-sheet strengths, or undermine financial stability. Contact: Primary Analyst Winnie Guo Associate Director +852 2263 9969 Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road Central, Hong Kong Secondary Analyst Laura Zhai Director +86 2263 9974 Committee Chairperson Kalai Pillay Senior Director +65 6796 7221 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Criteria for Rating Non-Financial Corporates (pub. 27 Sep 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1017391 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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All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. 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