October 11, 2017 / 8:27 AM / in 10 months

Fitch Affirms Zhuzhou City Construction at 'BBB-'; Outlook Stable

(The following statement was released by the rating agency) HONG KONG, October 11 (Fitch) Fitch Ratings has affirmed Zhuzhou City Construction Development Group Co., Ltd.'s (ZCCD) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) of 'BBB-' with a Stable Outlook. Fitch has also affirmed the rating on US dollar senior unsecured notes issued by ZCCD at 'BBB-'. KEY RATING DRIVERS Links to Zhuzhou City: The ratings of ZCCD remain linked to and reflect Fitch's internal assessment of the creditworthiness of China's Zhuzhou City, given the 100% state ownership of ZCCD, strong government oversight of its financials, and strategic importance of the entity's operation to the municipality. These factors result in a high likelihood of extraordinary support, if needed. Therefore, ZCCD is classified as a credit-linked public-sector entity under Fitch's Public-Sector Entity Rating Criteria. Zhuzhou City's Satisfactory Creditworthiness: Zhuzhou City continued to report stable budget performance and benefits from a diversified socio-economic profile. Its 2016 gross regional product (GRP) per capita of CNY62,681 remains above that of Hunan Province and the national average. The city's strengths remain partially offset by potentially high contingent liabilities arising from public-sector entities. Strategic Importance Attribute Stronger: ZCCD remains the primary investment and financing vehicle of Zhuzhou City and plays an important role in implementing the city government's blueprint for urban planning, in city infrastructure construction and in primary land development. The company also provides a wide spectrum of city services, including natural gas utilities, water supply, sewage treatment and public transportation. Government Integration Attribute Mid-range: The government has continued to provide cash and non-cash support for ZCCD's business, including capital injections, subsidies and local government debt swaps. ZCCD received subsidies of CNY336million, CNY348million, and CNY374 million for 2014, 2015 and 2016, respectively. The fiscal support partly funds ZCCD's capital expenditure and debt servicing. In addition, over CNY3 billion in receivables were due from the Zhuzhou Finance Bureau as of 31 December 2016. Legal Status Attribute Mid-Range: ZCCD is registered as a state-owned limited liability company under Chinese company law. It is wholly owned by Zhuzhou State-owned Assets Supervision and Administration Commission (Zhuzhou SASAC) and ultimately supervised by the Zhuzhou government. Control and Supervision Attributes Stronger: ZCCD board members are mainly appointed by the government and the company's major projects require the government's approval. ZCCD's financing plan and debt levels are closely monitored by the government, and the company is required to regularly report its operational and financial results to the government. 'B' Category Standalone Profile: ZCCD's credit profile remains weak, with a EBITDA-to-interest coverage of around 0.5x and debt-to-EBITDA at 30x-40x in the past three years due to its status as a local government financing vehicle. Fitch believes this trend will continue in the medium term, driven by ongoing infrastructure investments in Zhuzhou City. An extended settlement period after the completion of projects and sizeable account receivables due from the government could adversely affect ZCCD's liquidity. RATING SENSITIVITIES An upgrade of Fitch's internal assessment of the creditworthiness of Zhuzhou City may trigger positive rating action on ZCCD. A significant weakening in ZCCD's strategic importance to the city, dilution of the government's shareholding, or reduced government support, may result in a downgrade. A downgrade may also stem from weaker fiscal performance or increased indebtedness of the city, leading to deterioration in its creditworthiness. 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 Christophe Parisot Managing Director +33 144299134 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 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. 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. 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