November 28, 2017 / 9:45 AM / a year ago

Fitch Assigns Xiangyu Group First-Time 'BBB' Ratings

(The following statement was released by the rating agency) HONG KONG, November 28 (Fitch) Fitch Ratings has assigned Xiamen Xiangyu Group Corporation Long-Term Foreign- and Local-Currency Issuer Default Ratings of 'BBB'. The Outlook is Stable. KEY RATING DRIVERS Links to Xiamen Municipality: Xiangyu Group's ratings are credit linked to, but not equalised with, China's Xiamen municipality. The linkage is reflected in the group's 100% state ownership, strong municipal control and oversight, solid support record and the socio-political and financial impact for the government if Xiangyu Group defaults. These factors result in a high likelihood of extraordinary government support for Xiangyu Group, if needed. Hence, Xiangyu Group is classified as a credit-linked government-related entity under Fitch's criteria. Xiamen's Creditworthiness: Xiamen city's gross regional product expanded 7.9% yoy to CNY378.4 billion in 2016, faster than the nation's growth. Xiamen's gross regional product per capita of CNY97,282 is the highest in southeastern Fujian province. The city also has a satisfactory budget performance and a diverse socio-economic profile. Xiamen's economic development has been based on the extraordinary policy support from the upper levels of the government due to its role as China's major trading hub with Taiwan. Status, Ownership and Control: Xiangyu Group is registered as a state-owned limited-liability company under Chinese company law. It is wholly owned by Xiamen State-owned Assets Supervision and Administration Commission (Xiamen SASAC), which appraises management personnel, supervises and approves the company's financing plans and audits and monitors its operational and financial performance. The government also appoints the company's board and senior management. Strong Support: Xiangyu Group receives steady government financial support via asset and capital injections, subsidies, tax returns, share transfers and project-supporting funds to enhance its financial flexibility and boost capex. It has received around CNY7.3 billion in total government support from the company's establishment in 1995 to end-2016. Moderate Socio-Political Implications from Default: Xiangyu Group is a key developer and operator of Xiamen's Xiangyu Bonded Area and free-trade zone, including a modern logistics park, cross-strait trading centre with Taiwan and other key infrastructure. The company is also responsible for the city's food and grain preservation and has received subsidies for the operation. Xiangyu Group's failure would have a moderate socio-political effect on society. High Financial Implications from Default: Xiangyu Group plays an important role in driving the city's economic development by facilitating Xiamen's trading sector. Its 2016 assets represented around 20% of Xiamen's gross domestic product. The government has a strong incentive to provide timely support, as a failure to do so - leading to default - would hint at financial difficulties for the government. This would weaken the government's credibility and impair the availability and cost of its domestic and foreign financing options. Standalone Credit Profile: Total debt at Xiangyu Group amounted to CNY28 billion at end-2016. Total debt/Fitch-calculated EBITDA ranged from 7x-12x between 2014 and 2016, with EBITDA/interest coverage averaging at around 2x. Fitch expects the company to maintain similar leverage, debt and interest-coverage levels in the medium term. RATING SENSITIVITIES Links with Municipality: An upgrade of Fitch's credit view of Xiamen and a stronger or more explicit support commitment from the government may trigger positive rating action on Xiangyu Group. Significant weakening of the company's strategic importance to the municipality, dilution of the municipality's shareholding or lower explicit and implicit municipality support may result in a downgrade. A downgrade may also stem from weaker government fiscal performance or increased indebtedness, leading to deterioration in its creditworthiness. Contact: Primary Analyst Janet Liu Associate Director +852 2263 9983 Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road Central, Hong Kong Secondary Analyst Kelvin Tsui Director +852 2263 9965 Committee Chairperson Guido Bach Senior Director +49 69 768076 111 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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