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Fitch Rates Gansu Provincial Highway's Proposed Euro Notes at 'BBB-(EXP)'
November 23, 2017 / 10:31 AM / 20 days ago

Fitch Rates Gansu Provincial Highway's Proposed Euro Notes at 'BBB-(EXP)'

(The following statement was released by the rating agency) HONG KONG/SHANGHAI, November 23 (Fitch) Fitch Ratings has assigned China-based toll-road operator Gansu Provincial Highway Aviation Tourism Investment Group Co., Ltd.'s (GHAT, BBB-/Stable) proposed euro-denominated notes an expected rating of 'BBB-(EXP)'. The offshore notes will be issued directly by GHAT. The proposed notes are rated at the same level as GHAT's Long-Term Foreign-Currency Issuer Default Ratings (IDRs) because they will constitute its direct, unconditional, unsubordinated and unsecured obligations and will rank pari passu with its other present and future unsecured and unsubordinated obligations. Net proceeds will be used for funding highway development projects as well as for working capital and general corporate purposes. The final ratings on the proposed euro notes are contingent upon the receipt of final documents conforming to information already received. Fitch classifies GHAT as credit-linked to Gansu province using a top-down approach under its Rating of Public-Sector Entities - Outside the United States criteria. The link reflects strong government oversight and supervision, high strategic importance of GHAT's public-sector business and midrange integration with the provincial budget. These factors indicate that GHAT would be likely to receive extraordinary support from the government, if needed. KEY RATING DRIVERS Gansu Province's Creditworthiness: Gansu, a province in northwest China, has a small gross regional product that ranks 23rd among China's 31 mainland provinces. However, Gansu's gross regional product growth is higher than the national average. The central government has been contributing most of Gansu's fiscal income and we expect the province to receive continued support as it has become a key part of China's Belt and Road initiative. Legal Status Midrange: GHAT is registered as a state-owned limited liability company under Chinese company law. The company is wholly owned by Gansu's State-owned Assets Supervision and Administration Commission. Strategic Importance Strong: The provincial government has designated GHAT as the sole provincial-level state-owned enterprise responsible for developing the region's highway network. The company plays an important role in implementing the government's blueprint for transportation infrastructure construction by operating key regional highways and high-grade roads and serving as a financing vehicle for road construction. GHAT also manages and operates several key scenic areas on behalf of the provincial government. Tightly Controlled and Supervised: GHAT is controlled directly by Gansu's provincial government, which closely monitors its financing plan and debt levels and appoints or nominates GHAT's board members, except for employee representatives. In addition, the development of GHAT's expressway network needs approval from Gansu province's Department of Transportation. Integration Attribute Midrange: GHAT has a record of receiving ongoing financial support from the provincial government, including subsidies, tax rebates and asset injections. The government refunded CNY1.26 billion of the fuel and business taxes levied on GHAT's major infrastructure construction projects over the past three years and has committed to injecting CNY100 million a year into GHAT to support its tourism business. Weak Financial Profile: GHAT's standalone credit profile is constrained by its high debt leverage and low coverage. Fitch expects its net debt/EBITDA to stay around 27.0x, while its interest coverage will remain at 0.8x over the next two to three years. The company generated 85.1% of its revenue through its commodity-trading business in 2016, which is mainly an agency business and makes limited profit. Over 85% of net profit was contributed by its toll-road operation business. RATING SENSITIVITIES Any rating action on GHAT's IDRs would result in similar action on the ratings of the proposed euro notes. A stronger or more explicit support commitment from the Gansu provincial government may trigger positive rating action on GHAT. Significantly lower strategic importance, a diluted municipal shareholding or reduced explicit and implicit governmental support could lead to a wider rating gap between GHAT and our internal credit view of the provincial government. An upgrade of Fitch's internal credit view of Gansu province may trigger positive rating action on GHAT, while weaker fiscal performance or heightened indebtedness of the provincial government could lead Fitch to lower its internal assessment of the province's creditworthiness and trigger a downgrade of GHAT's ratings. Contact: Primary Analyst Terry Gao Senior Director +852 2263 9972 Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road Central, Hong Kong Secondary Analyst Ark Huang Analyst +86 21 5097 3153 Committee Chairperson Christophe Parisot Managing Director +33 1 44 29 91 34 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 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#solicitation 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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