December 19, 2017 / 9:17 AM / a year ago

Fitch Rates Huzhou City Investment's USD Notes Final 'BBB-'

(The following statement was released by the rating agency) HONG KONG, December 19 (Fitch) Fitch Ratings has assigned Huzhou City Investment Development Group Co., Ltd.'s (HIDG) USD300 million 4.875% notes due 2020 a final rating of 'BBB-'. The assignment of the final rating follows the receipt of documents conforming to information already received. The final rating is in line with the expected rating assigned on 7 December 2017. Issue net proceeds will be used for development projects, including renovation of shanty towns and hospital expansions, as well as for group working capital. KEY RATING DRIVERS Linked to Huzhou Municipality: The ratings of HIDG are credit linked to, but not equalised with, Fitch's assessment of the creditworthiness of Huzhou municipality in eastern China. This reflects the 100% state ownership of HIDG, strong municipal control and oversight, strong strategic importance of HIDG to the municipality and its mid-range integration with the government. These factors result in a high likelihood of extraordinary support, if needed. Hence, HIDG is classified as a credit-linked public-sector entity under Fitch's criteria. Huzhou's Creditworthiness: Huzhou's gross regional product (GRP) increased by 7.5% in 2016, faster than the national rate, to CNY224 billion. Huzhou's GRP per capita of CNY84,696 was higher than the national average of CNY53,980 and in line with the Zhejiang province average. Huzhou has satisfactory budget performance and a diversified socio-economic profile. Huzhou is close to three major Chinese cities - Shanghai, Nanjing and Hangzhou. The cities' industries include advanced manufacturing equipment, textiles and garments and biomedicine. Mid-Range Legal Status: HIDG is wholly owned by the Huzhou State-owned Assets Supervision and Administration Commission (Huzhou SASAC). The company is registered as a limited liability company under China's Company Law. Company directors and senior management are mainly appointed or nominated by the municipal government and its major decisions need government approval. Fitch assesses the legal status of HIDG as Mid-Range as the company is allowed to file for bankruptcy. Stronger Control and Supervision: HIDG is directly managed, supervised and controlled by the Huzhou government through Huzhou SASAC. The board of directors is the highest decision-making body of HIDG; all board members, except for employee representatives, are either appointed or nominated by the municipal committee and municipal government of Huzhou. Any changes in the board of supervisors or board of directors need to be approved by the government. Mid-Range Integration: HIDG has received capital injections and operating subsidies from Huzhou municipality. Subsidies represented 80%-160% of its annual pre-tax profit in the past three years. The government also injected capital into HIDG to develop it into a conglomerate with multiple social and commercial functions, such as infrastructure, utilities and property development. Stronger Strategic Importance: The company is the largest urban infrastructure developer and affordable housing developer in Huzhou. HIDG also has a monopoly in water and gas utilities. The government is motivated to prevent a failure of HIDG, as it would have a significant impact on key public services in the city. If the company defaults, that will indicate the government has difficulty providing timely support despite its willingness to do so, and will impair the government's credibility. This will significantly affect the availability and cost of domestic and foreign fund-raising options. Weak Standalone Credit Profile: HIDG's standalone credit profile is constrained by the public-service nature of its businesses of developing urban infrastructure and affordable housing. The company has limited business conducted on a commercial basis. Its strategic link with Huzhou municipality implies a fair level of extraordinary government support, if needed. RATING SENSITIVITIES Links with Municipality: An upgrade of Fitch's credit view on Huzhou, as well as a stronger or more explicit support commitment from the government, may trigger positive rating action on HIDG. Significant weakening of the entity's strategic importance to the municipality, dilution of the municipality's shareholding or reduced explicit and implicit municipal support may result in a downgrade. A downgrade may also stem from weaker fiscal performance or increased indebtedness of the government, leading to deterioration in its creditworthiness. Any change in the IDRs of HIDG will result in a change to a similar extent in the ratings of the US-dollar notes. Contact: Primary Analyst Kelvin Tsui Director +852 2263 9965 Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road Central, Hong Kong Secondary Analyst Janet Liu Associate Director +852 2263 9983 Committee Chairperson Christophe Parisot Managing Director +33 1 44 29 91 34 Date of the Relevant Rating Committee: 7 December 2017 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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