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Fitch Affirms Shaoxing City Investment Group at 'BBB+'/Stable
January 18, 2017 / 9:26 AM / 7 months ago

Fitch Affirms Shaoxing City Investment Group at 'BBB+'/Stable

(The following statement was released by the rating agency) HONG KONG, January 18 (Fitch) Fitch Ratings has affirmed Shaoxing City Investment Group Limited's (SCIG) Long-Term Foreign- and Local-Currency Issuer Default Ratings at 'BBB+' with a Stable Outlook. A full list of rating actions is at the end of this commentary. KEY RATING DRIVERS Legal Status Assessed at Mid-Range: SCIG is registered as a limited liability company under China's Company Law, and it is 100% state-owned. Its legal status is assessed to be the same as the initial assessment at mid-range, due to the possibility of bankruptcy and because not all the employees are civil servants. Strategic Importance Assessed at Stronger: SCIG is the major urban infrastructural investment platform of Shaoxing municipality in eastern China, and it plays an important role in implementing Shaoxing's blueprint for urban development. SCIG has been mandated by government to construct Shaoxing Sports Centre, Shaoxing Cultural Centre, affordable housing, municipal roads and various urban redevelopment projects. The government has also tasked SCIG with developing an urban metro network. Government Integration Assessed at Stronger: The Shaoxing municipal government has commissioned SCIG to undertake various urban infrastructure projects. SCIG received CNY2.86 billion in subsidies and CNY3.8 billion in capital injections from the municipal government in 2012-2015. In 2014, the government also granted SCIG rights for primary land development in certain sites in central Shaoxing. Government subsidies made up 28% of SCIG's annual operating revenue in 2014 and 2015, while the total capital injections in the past four years made up 13% of total assets at end-2015. Control Attribute Assessed at Stronger: SCIG's strategic direction is determined by the Shaoxing municipal government. Major group decisions regarding funding, capex or strategic development are closely supervised by the government. The government from 2016 will also directly monitor and manage SCIG's group funding plan. Shaoxing's Strong Creditworthiness: Zhejiang province is one of the strongest economic regions in China. Shaoxing's gross regional product (GRP) annual growth rate and GRP per capita was higher than the national average in 2015. Shaoxing municipality has a strong fiscal budget performance, diversified socio-economic profile and strategic location at the centre of Yangtze River Delta economic zone, one of China's top three economic zones. Links to Shaoxing Municipality: SCIG's ratings are credit-linked but not equalised to Fitch's internal assessment of the creditworthiness of Shaoxing municipality. The link is reflected in the municipality's ownership of 100% of SCIG, municipal oversight on the entity's financial performance, and important policy role the entity's public-sector business plays in the municipality. These factors result in a high likelihood of extraordinary support, if needed. However, SCIG's rating is notched down from the assessment of Shaoxing's creditworthiness to reflect the municipality's relatively small size of public-sector debt, potential substitution by SCIG's public-sector competitors, and a lack of written commitment about the timing and amount of future capital injections from the sponsor. Standalone Profile 'B' Category: SCIG's revenue remains stable, but its ability to generate profit is still weak, and it relies heavily on government subsidies to finance its operations. The entity's standalone profile is viewed by Fitch to be within the 'B' category as its EBITDA coverage stayed around 2.0x and debt/EBITDA at around 12x at end-2015. RATING SENSITIVITIES An upgrade of Fitch's credit view on Shaoxing Municipality as well as a stronger or more explicit support commitment from the municipality may trigger a positive rating action on SCIG. Significant weakening of SCIG's strategic importance to the municipality, dilution of the government's shareholding, or reduced explicit and implicit municipality support, may result in a rating downgrade. A downgrade could also stem from a weaker fiscal performance or increased indebtedness of the municipality, leading to deterioration in Fitch's internal assessment of the creditworthiness of the municipality. The full list of rating actions is as follows: Shaoxing City Investment Group Limited Long-Term Foreign-Currency IDR affirmed at 'BBB+'; Outlook Stable Long-Term Local-Currency IDR affirmed at 'BBB+'; Outlook Stable Shaoxing City Investment (HK) Limited USD300m 4.75% senior unsecured notes due 2019 affirmed at 'BBB+' Contact: Primary Analyst Lorraine Liu Analyst +852 2263 9929 Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road Central, Hong Kong Secondary Analyst Terry Gao Director +852 2263 9972 Committee Chairperson Guido Bach Senior Director +49 69 768076 111 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 Dodd-Frank Rating Information Disclosure Form here _id=1017698 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. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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