December 1, 2017 / 1:59 PM / a year ago

Fitch Affirms Zhanglong at 'BB+'; Outlook Stable

(The following statement was released by the rating agency) HONG KONG, December 01 (Fitch) Fitch Ratings has affirmed Fujian Zhanglong Group Co., Ltd.'s (Zhanglong) Long-Term Foreign- and Local-Currency Issuer Default Ratings at 'BB+'. The Outlook is Stable. At the same time, Fitch has affirmed the rating on its USD500 million senior unsecured notes at 'BB+'. KEY RATING DRIVERS Linked to Zhangzhou Municipality: The ratings of Zhanglong are credit-linked to, but not equalised with, Fitch's internal assessment of the creditworthiness of Zhangzhou Municipality in China's Fujian Province. The link reflects strong government control and oversight of the entity, mid-range assessment of the entity's strategic importance to the municipality, integration with the government budget and legal status. These factors result in a high likelihood of extraordinary support, if needed, from the municipality. Therefore, Zhanglong is classified as a credit-linked public-sector entity under Fitch's criteria. Zhangzhou's Creditworthiness: Zhangzhou's gross regional product (GRP) has been expanding above the provincial and national rate. Its per capita GRP for 2016 was CNY62,196, higher than the national average of CNY53,980. Fiscal strength was partly offset by a high debt burden relative to its economic size and fiscal performance. Strategic Importance - Mid-Range: Zhanglong continues to play an important role in the city's daily operations and development. It is the city's sewage treatment service provider, the major water supplier to urban areas in the city, and a designated agency for sourcing building materials for certain local-government-owned housing and infrastructure projects. It also engages in infrastructure construction and has participated in bridge and expressway projects linking to Zhangzhou Municipality. Integration - Mid-Range: Zhanglong's profitability relies heavily on subsidies from the Zhangzhou municipal government. However, these subsidies are modest compared with overall turnover. Zhanglong received on average over CNY500 million per annum in the past three years (around 5% of Zhanglong's revenue). Legal Status - Mid-Range: As a limited liability company, Zhanglong's legal status does not indicate automatic absorption of all of its liabilities by Zhangzhou Municipality. Control and Supervision - Stronger: Zhanglong's board of directors is appointed by the government. Major projects and investments require the government's approval. Zhanglong's financing plan and debt levels are monitored by the government, and the company is required to report its operational and financial results to the government. Standalone Profile - Weak: Zhanglong has a weak credit profile, with increasing debt and profitability dependent on government subsidies. Fitch believes the standalone credit profile will continue to be weak in the medium term, driven by ongoing infrastructure investments in Zhangzhou, and the thin profitability of its trading business. RATING SENSITIVITIES Link with Municipality: A stronger or more explicit support commitment from Zhangzhou Municipality, or an increased focus on public-service provision and infrastructure construction may trigger a positive action on Zhanglong's ratings. Significant weakening of Zhanglong's strategic importance to the municipality, dilution of the government's shareholding, and/or reduced government support could result in a downgrade. Creditworthiness of Municipality: An upgrade of Fitch's internal credit view on Zhangzhou Municipality may trigger a positive rating action. Negative rating action could derive from deterioration in Zhangzhou Municipality's credit profile. Contact: Primary Analyst Jean Luo Associate Director +852 2263 9952 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 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 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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