June 12, 2017 / 7:28 AM / 5 months ago

Fitch Affirms Wuxi Construction at 'BBB+'; Outlook Stable

(The following statement was released by the rating agency) HONG KONG, June 12 (Fitch) Fitch Ratings has affirmed Wuxi Construction and Development Investment Co., Ltd.'s (WCDI) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at 'BBB+' with a Stable Outlook. Fitch has also affirmed its US dollar senior unsecured notes issued by Xihui Haiwai I Investment Holdings Co., Limited (Xihui Haiwai I) at 'BBB+'. KEY RATING DRIVERS Linkage to Wuxi Municipality: WCDI's ratings are credit-linked but not equalised with Fitch's internal assessment of China's Wuxi Municipality. This is reflected in 100% state ownership, strong government oversight on its financials, and the strategic importance of the entity's operation to the government. These factors result in a high likelihood WCDI would get extraordinary support from the Wuxi authorities, if needed. Wuxi's Strong Creditworthiness: Wuxi is part of the province of Jiangsu, which is one of China's strongest economic regions in terms of gross regional product. The Wuxi municipality has a strong fiscal budget, a diversified socioeconomic profile and benefits from its strategic location as the centre of the Yangtze River Delta economic zone, one of China's top three economic zones. Legal Status Attribute Mid-Range: WCDI is registered as a state-owned limited liability company under Chinese company law. It is allowed to go bankrupt and its employees are not all civil servants. Strategic Importance Attribute Stronger: WCDI is Wuxi's major urban public infrastructure development and investment platform, and plays a very important role in implementing Wuxi's blueprint of urban development. WCDI is mandated by the government to develop municipal roads and bridges, city greening, sewage treatment of Taihu Lake and water conservancy. Control and Supervision Attribute Stronger: WCDI is wholly owned by the Wuxi government and reports to the Wuxi Department of Finance. The company's directors and senior management are appointed mainly by the government, and its major decisions need the government's approval. The company's financing plan and debt funding require government approval. Integration Attribute Stronger: WCDI's integration reflects the historical capital injection and subsidies made by the government. Since the establishment of WCDI in 2005, the company has received CNY18 billion in capital injection from the government up to the end of 2016, which represented 95% of equity. Weak Financial Profile: The company has a very high level of leverage and very low profitability because of its public welfare nature. The company's capex will stay high and it is unlikely that the company's standalone credit metrics will improve. However, with stable support from the Wuxi government, the risk has been mitigated. The notes were issued by Xihui Haiwai I, and are unconditionally and irrevocably guaranteed by Xihui International Co., Limited (Xihui International), a wholly owned subsidiary of WCDI. WCDI has granted a keepwell and liquidity support deed and a deed of equity interest purchase undertaking to ensure that Xihui International has sufficient assets and liquidity to meet its obligations under the guarantee for the notes. The notes are rated at the same level as WCDI's IDRs, given the strong link between Xihui International and WCDI, and because the keepwell and liquidity support deed and deed of equity interest purchase undertaking transfer the ultimate responsibility of payment to WCDI. RATING SENSITIVITIES A stronger support commitment from Wuxi Municipality may trigger positive rating action on WCDI. An upgrade of the internal assessment of Wuxi Municipality would result in an upgrade of WCDI. A significant weakening of WCDI's strategic importance to Wuxi, a dilution of the government's shareholding, and/or reduced explicit and implicit municipality support, may cause a downgrade. A downgrade could also stem from weaker fiscal performance or increased indebtedness of the municipality that causes our internal assessment of its creditworthiness to deteriorate. Contact: Primary Analyst Fan Gao Analyst +852 2263 9960 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. 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