November 9, 2017 / 8:11 AM / a year ago

Fitch Affirms Yancheng Oriental's 'BB+' Ratings; Outlook Stable

(The following statement was released by the rating agency) HONG KONG, November 09 (Fitch) Fitch Ratings has affirmed China-based Yancheng Oriental Investment & Development Group Co., Ltd's (Yancheng Oriental) Long-Term Foreign- and Local-Currency Issuer Default Ratings at 'BB+'. The Outlook is Stable. Fitch has also affirmed the 'BB+' rating on the USD300 million 5.15% senior unsecured notes due 2019 issued by Yancheng Oriental's wholly owned subsidiary, Oriental Capital Company Limited (OCC). The notes are rated at the same level as the Issuer Default Rating of Yancheng Oriental, due to the strong link between OCC and Yancheng Oriental, and the keepwell and liquidity support deed and the deed of equity interest purchase undertaking granted by Yancheng Oriental, which provide additional support and transfer the ultimate responsibility of payment to Yancheng Oriental. KEY RATING DRIVERS Linked to Yancheng Municipality: The ratings of Yancheng Oriental are credit-linked to, but not equalised with, that of China's Yancheng Municipality. The link reflects strong government control and oversight, as well as mid-range strategic importance to the municipality and integration with the government budget. These factors result in a high likelihood of extraordinary support, if needed, from the municipality. Yancheng's Creditworthiness: Yancheng is a middle-tier municipality in terms of demographics. In 2016, Yancheng's gross regional product (GRP) ranked seventh among 13 prefecture-level cities within Jiangsu Province and 37th among the top 100 cities in China. Fitch expects Yancheng's overall credit profile to remain stable, although its 2016 budgetary performance was hit by a one-off national VAT reform, in line with other Chinese local and regional governments. Legal Status Midrange: Yancheng Oriental is registered as a state-owned limited liability company and hence is allowed to go bankrupt. The attribute was assessed at Midrange, as Yancheng Oriental's legal status does not indicate automatic absorption of its liabilities by Yancheng Municipality. Control and Supervision Stronger: The attribute reflects the government's ownership and tight control over Yancheng Oriental. Under the shareholding structure, the municipality has ultimate control and oversight of the company's strategic direction and financing plans through the appointment of the company's board of directors and the management committee of the Yancheng Economic-Technological Development Zone (ETDZ). Yancheng Oriental plays a vital role in developing and managing the zone's infrastructure and housing. Government Integration Midrange: Fitch views the government's recurring financial support as evidence of its commitment towards Yancheng Oriental's expansion. In 2016, Yancheng Oriental received CNY210 million worth of asset injections and CNY181 million in subsidies that accounted for 69% of total profit. The Midrange attribute has factored in the government's track record of support and that Yancheng Oriental's finances are not consolidated into the government budget. Strategic Importance Midrange: Yancheng Oriental ranked second in terms of total assets among the city's local-government financing vehicles (LGFVs) and is the flagship vehicle within the ETDZ, which accounted for about 8% of the city's GRP. The attribute was assessed at Midrange as Yancheng Oriental has a limited geographical scope and there is more than one urban developer within Yancheng Municipality. Weak Standalone Profile: As a public-sector entity, Yancheng Oriental's financial profile is characterised by large capex, negative free cash flow and high leverage. The company's liquidity could be adversely affected by any extension in the settlement of project buybacks by the municipality and sizeable receivables due from Yancheng ETDZ's Finance Bureau. RATING SENSITIVITIES Linkage With Municipality: A stronger or more explicit support commitment from Yancheng Municipality may trigger positive rating action on Yancheng Oriental. Significant changes to Yancheng Oriental's strategic importance, a dilution in government shareholding, and/or reduced government support, could result in a downgrade. A change in Fitch's internal credit view on Yancheng Municipality may trigger a corresponding rating action on Yancheng Oriental. Contact: Primary Analyst Samuel Kwok Associate Director +852 2263 9961 Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road Central, Hong Kong Secondary Analyst Jean Luo Associate Director +852 2263 9952 Committee Chairperson Vladimir Redkin Senior Director +7 495 956 2405 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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