November 1, 2017 / 11:13 AM / a year ago

Fitch Affirms Gansu Provincial Highway at 'BBB-'; Outlook Stable

(The following statement was released by the rating agency) HONG KONG/SHANGHAI, November 01 (Fitch) Fitch Ratings has affirmed China-based toll-road operator Gansu Provincial Highway Aviation Tourism Investment Group Co., Ltd.'s (GHAT) Long-Term Foreign-Currency Issuer Default Rating (IDR) and foreign currency senior unsecured rating at 'BBB-'. The Outlook is Stable. The affirmation reflects the unchanged links between GHAT and China's Gansu province over the last 12 months. KEY RATING DRIVERS Linked to Gansu Province: Fitch classifies GHAT as an entity that is credit linked to the province under its Rating of Public-Sector Entities - Outside the United States criteria using a top-down approach. The link reflects strong government oversight and supervision, high strategic importance of GHAT's public-sector business and midrange integration with the provincial budget. These factors indicate that GHAT would be likely to receive extraordinary support from the government, if needed. Gansu Province's Creditworthiness: Gansu, a province in northwest China, has a relatively small GRP that is ranked 23rd among the 31 mainland China provinces. However, Gansu's GRP growth is higher than the national average. The central government has been contributing most of Gansu's fiscal income. We expect the province to receive continued support as it has become a key part of China's the Belt and Road initiative. Legal Status Assessed at Midrange: GHAT is registered as a state-owned limited liability company under Chinese company law. The company is wholly owned by Gansu's State-owned Assets Supervision and Administration Commission. Strategic Importance Assessed at Strong: GHAT has been designated by the provincial government as the sole provincial-level state-owned enterprise responsible for developing the region's highway network. The company plays an important role in implementing the government's blueprint for transportation infrastructure construction by operating key regional highways and high-grade roads and serving as a financing vehicle for road construction. GHAT also manages and operates several key scenic areas on behalf of the provincial government. Tightly Controlled and Supervised: GHAT is controlled directly by Gansu's provincial government. Its financing plan and debt levels are closely monitored by the government and the development of its expressway network needs approval from Gansu province's Department of Transportation. GHAT's board members, except for employee representatives, are all appointed or nominated by the government. Integration Attribute Assessed at Midrange: GHAT has a track record of receiving ongoing financial support from the provincial government, including subsidies, tax rebates and asset injections. The government refunded CNY1.26 billion of the fuel and business taxes levied on GHAT's major infrastructure construction projects over the past three years. The government also committed to inject CNY100 million a year into GHAT to support its tourism business. Weak Financial Profile: GHAT's standalone credit profile is constrained by its relatively high debt leverage and low coverage. Fitch expects its net debt to EBITDA to stay around 27x while its interest coverage will remain at 0.8x over the next two to three years. The company generated 85.1% of its revenue through its commodity trading business in 2016, which is mainly an agency business and makes limited profit. Over 85% of the net profit was contributed by its toll road operation business. RATING SENSITIVITIES Linkage with Gansu Province: A stronger or more explicit support commitment from the Gansu provincial government may trigger a positive rating action on GHAT. Significant changes to GHAT's strategic importance, a diluted municipal shareholding or reduced explicit and implicit governmental support could lead to a wider rating gap between GHAT and our internal credit view of the provincial government. Creditworthiness of the Provincial Government: An upgrade of Fitch's internal credit view of Gansu province may trigger positive rating action on GHAT. Weaker fiscal performance or heightened indebtedness of the provincial government could lead Fitch to lower its internal assessment of its creditworthiness and potentially trigger a downgrade of GHAT's ratings. Contact: Primary Analyst Terry Gao Senior Director +852 2263 9972 Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road Central, Hong Kong Secondary Analyst Ark Huang Analyst +86 21 5097 3153 Committee Chairperson Christophe Parisot Managing Director +33 1 44 29 91 34 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: Additional information is available on Applicable Criteria International Local and Regional Governments Rating Criteria - Outside the United States (pub. 18 Apr 2016) here Rating Criteria for Public Sector Revenue-Supported Debt (pub. 05 Jun 2017) 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 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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