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Fitch Affirms Chengdu Xingcheng Investment at 'BBB+'/Stable
November 9, 2017 / 12:17 PM / a month ago

Fitch Affirms Chengdu Xingcheng Investment at 'BBB+'/Stable

(The following statement was released by the rating agency) HONG KONG, November 09 (Fitch) Fitch Ratings has affirmed Chengdu Xingcheng Investment Group Co., Ltd.'s (CXIG) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at 'BBB+' with a Stable Outlook. The agency has also affirmed the senior unsecured rating at 'BBB+'. The ratings of CXIG are credit-linked but not equalised to Fitch's internal assessment of the creditworthiness of China's Chengdu Municipality. This is due to the municipality's 100% ownership of the company, strong government control and oversight over CXIG's operations and financing, and the high strategic importance of the entity's operations to the municipality. Therefore, we believe there is a great likelihood that CXIG would receive extraordinary government support, if needed. KEY RATING DRIVERS Chengdu's Strong Creditworthiness: Chengdu, the capital of Sichuan Province in southwest China, was ranked among the top 10 cities in the country in terms of gross regional product (GRP) in 2016. It is one of six large cities the Chinese government has designated as National Central Cities to take the lead in balancing national development. Chengdu has strong fiscal performance and a diversified socio-economic profile. However, its strength is mitigated by its relatively high leverage including contingent liabilities arising from its public-sector entities. Legal Status Attribute Mid-Range: CXIG is registered as a limited liability company under China's Company Law, which stipulates that the government is not liable for guaranteeing the company from insolvency. Chengdu State-owned Assets Supervision and Administration Commission is the sole shareholder and the company is supervised by the local government. Strategic Importance Attribute Mid-Range: CXIG is one of the municipality's primary investment and financing vehicles tasked with funding and carrying out primary land development, urban development, city infrastructure construction and building affordable housing as part of the local government's urban planning blueprint. In addition, CXIG seeks to balance the development of the urban and rural areas of Chengdu to enhance the local urbanisation rate and boost economic growth. Control Attribute Assessed as Stronger: The local government is CXIG's principal supervisory authority and appoints most of its board members. The government also has the right to approve CXIG's major projects given its importance to the city's development. The government monitors closely CXIG's financing plans and debt management, and the company is required to report both operational and financial results to the government on a regular basis. Integration Attribute Stronger: CXIG has received consistent government financial and operational support including capital injections, land transaction fee rebates and access to a debt-swap scheme. In addition, part of CXIG's debt is integrated into the local government's debt. Fitch expects the government's support to continue as CXIG undertakes important infrastructure projects at the request of the Chengdu government. A majority of its business and assets are derived from government-funded or government-driven projects. Weak Standalone Financials: We expect CXIG's standalone credit profile to be constrained by the public-service nature of its projects such as affordable housing and infrastructure development that lead to negative free cash flows. However, the company operates some commercially driven projects that help to strengthen its debt servicing capability. Its net debt to adjusted EBITDA fell from 21.0x in 2015 to 14.4x in 2016 and its interest coverage ratio improved to 0.55x in 2016 from 0.51x in 2015. RATING SENSITIVITIES Links with Chengdu Municipality: An upgrade of Fitch's internal assessment of the creditworthiness of Chengdu Municipality may trigger positive rating action on CXIG. A positive rating action may also stem from a stronger or more explicit commitment of support from the municipal government. A weakening of CXIG's strategic importance to the municipality, weakening of the municipal government's controlling shareholding, and/or reduced municipal support may result in a negative rating action. A downgrade may also stem from weaker fiscal performance or increased indebtedness of the municipality, leading to deterioration of Fitch's internal assessment of the creditworthiness of Chengdu Municipality. Contact: Primary Analyst Ethan Lee Associate Director +852 2263 9912 Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road Central, Hong Kong Secondary Analyst Terry Gao Senior 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 Solicitation Status here#solicitation 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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