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Fitch Affirms Guangzhou Metro Group at 'A'; Outlook Stable
November 16, 2017 / 9:57 AM / a month ago

Fitch Affirms Guangzhou Metro Group at 'A'; Outlook Stable

(The following statement was released by the rating agency) HONG KONG, November 16 (Fitch) Fitch Ratings has affirmed Guangzhou Metro Group Co., Ltd.'s (GZMG) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at 'A' with a Stable Outlook. A full list of rating actions is at the end of this commentary. GZMG's ratings are credit linked to but not equalised with, Fitch's internal assessment of the creditworthiness of Guangzhou Municipality, the capital of Guangdong Province. This is reflected in the municipality's controlling ownership, its strong financial oversight of GZMG, the strategic importance of GZMG's operations, and GZMG's financial integration with the municipality. These factors mean there is a strong likelihood of GZMG receiving extraordinary state support, if needed. Therefore, Fitch classifies it as a credit-linked entity under its criteria "Rating of Public-Sector Entities". KEY RATING DRIVERS Linked to Guangzhou Municipality: Fitch classifies GZMG as an entity credit linked to Guangzhou 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, the high strategic importance of GZMG's public-sector business and strong integration with the provincial budget. Guangzhou's Strong Creditworthiness: Guangzhou is a semi-provincial municipality and the capital city of Guangdong Province. Its gross regional product is the third largest among the 333 prefecture-level municipalities in China. The municipality has a strong fiscal budget, a diversified socioeconomic profile and a strategic location at the heart of the Pearl River Delta area and southern China. Strategic Importance Attribute Assessed as Stronger: GZMG remains the sole metro operator of Guangzhou Municipality, and executes the latter's metro transportation policy. Rail transit has become key to addressing Guangzhou's increasing traffic congestion and to providing a reliable means of commuting for the city's 14 million residents. Fitch therefore believes GZMG will continue to play an important role in the municipality's sustainable development. Control and Supervision Attribute Assessed as Stronger: All board members of GZMG are appointed by the Guangzhou government, and Guangzhou State-owned Assets Supervision and Administration Commission is directly involved in the company's major decisions. The company's financing plans and debt are closely monitored by the government and it regularly reports its operational and financial performance to the government. Integration Attribute Assessed as Stronger: The government has injected significant capital into the company in recent years. GZMG received a capital injection of CNY10 billion in 2016, while the government committed to inject at least CNY10 billion every year to support GZMG's metro development. The company also receives a subsidy from the government (CNY4.2 billion in 2016) to sustain the metro's low-fare policy and ease GZMG's financing cost burden. Legal Status Attribute Assessed at Mid-Range: GZMG is registered as a local state-owned limited liability company under Chinese company law. It is wholly owned and supervised by the Guangzhou municipal government. The notes listed below are issued by Guangzhou Metro Investment Finance (BVI) Ltd., and are unconditionally and irrevocably guaranteed by Guangzhou Metro Investment Finance (HK) Limited (GMHK), a wholly owned subsidiary of GZMG. The notes will be senior unsecured obligations of GMHK and also rank pari passu with all other senior unsecured obligations of GMHK. GZMG has granted, instead of a guarantee, a keepwell and liquidity support deed and a deed of equity interest purchase undertaking to ensure GMHK has sufficient assets and liquidity to meet its obligations under the guarantee. The notes under the MTN programme are rated at the same level as GZMG's IDR, given the strong link between GMHK and GZMG and because the keepwell and liquidity support deed and deed of equity interest purchase undertaking transfer ultimate responsibility for payment to GZMG. In Fitch's opinion, the keepwell and liquidity support deed, and the deed of equity interest purchase undertaking from GZMG signal a strong intention from GZMG to ensure GMHK, guarantor of the notes, has sufficient funds to honour the debt obligations. Fitch also believes GZMG intends to maintain its reputation and credit profile in the international offshore market, and is unlikely to default on its offshore obligations. In addition, a default by GMHK could have significant negative repercussions on GZMG for any future offshore funding. RATING SENSITIVITIES Linkage with Municipality: Stronger or more explicit municipal support may trigger a positive rating action on GZMG. A weakening of GZMG's strategic importance to the municipality, or weakening of the municipal government's controlling shareholding, and/or reduced municipality support could lead to a wider rating gap between GZMG and the Guangzhou Municipality. Creditworthiness of Municipality: A weaker fiscal performance by and/or increased indebtedness of Guangzhou could lead to a lowering of Fitch's internal assessment of Guangzhou Municipality's creditworthiness and therefore may trigger negative rating action on GZMG. Any rating action on GZMG's IDR would result in similar rating actions on the MTN programme and the rated notes under the MTN programme. The full list of rating actions is as follows: Guangzhou Metro Group Co., Ltd. Long-Term Foreign-Currency IDR affirmed at 'A'; Outlook Stable Long-Term Local-Currency IDR affirmed at 'A'; Outlook Stable Guangzhou Metro Investment Finance (BVI) Ltd. USD3bn medium-term note programme affirmed at 'A' USD400m of 2.875% senior unsecured notes due 2018 affirmed at 'A' USD200m of 3.375% senior unsecured noted due 2020 affirmed at 'A' 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 Raffaele Carnevale Senior Director +39 02 87 90 87 203 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. 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. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. 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. 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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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