August 4, 2017 / 8:11 AM / 17 days ago

Fitch Rates Shougang's EUR Notes Final 'A-'

(The following statement was released by the rating agency) HONG KONG/SHANGHAI, August 04 (Fitch) Fitch Ratings has assigned Shougang Group Co., Ltd's (A-/Stable) EUR400 million 1.35% senior notes due 2020 a final rating of 'A-'. The notes are rated at the same level as Shougang's senior unsecured rating as they represent its direct, unconditional, unsecured and unsubordinated obligations. This final rating follows the receipt of documents conforming to information already received and is in line with the expected rating assigned on 29 May 2017. KEY RATING DRIVERS Strong Linkage with Beijing: Shougang's ratings are linked to Fitch's internal assessment of the creditworthiness of the Beijing municipality, reflecting the company's strong operational and strategic ties with the Beijing government. Shougang is 100% owned by the Beijing State-Owned Assets Supervision and Administration Commission (SASAC). The Beijing municipality has a robust budgetary performance, a strong and well-diversified socio-economic profile and a close relationship with the China sovereign (A+/Stable) owing to its status as the capital. The Stable Outlook reflects our expectation that Shougang's operations will remain stable and government support will remain strong. Key to Implementing China's Strategy: Shougang is currently undertaking two major developments, New Shougang Beijing Development and Caofeidian Development, which are considered core parts of China's coordinated development plan for the Beijing-Tianjin-Hebei (Jingjinji) region. The primary task of the Jingjinji plan is to divert Beijing's non-capital functions to surrounding regions so that Beijing only maintains its function as a cultural, political, international-exchange and innovation centre. Increasing Focus on Public Service: Shougang was categorised under the Special Functions group of Beijing SASAC after its transition from steel producer to public-service provider in 2010. We expect close to 50% of Shougang's capex for 2017-2019 to be used for public-service functions, such as the development of Caofeidian and New Shougang Beijing, and environmental projects, such as garbage disposal and desalination plants. Record of Support: Shougang has received close to CNY24 billion of direct funding support from the central and Beijing governments since 2008. Beijing Finance Bureau also provided CNY10 billion of the CNY20 billion Shougang Fund, which was set up to support Shougang's developments in Caofeidian and New Shougang Beijing. This is the first time the Beijing Finance Bureau has provided funding directly to a fund. We expect government support to remain strong for Shougang given the importance of the projects to the state. Significant Steel Producer: Shougang is China's fifth-largest steel producer by volume and ranks among the top three producers in various high-value-add products, such as auto and appliance sheets. DERIVATION SUMMARY Shougang's ratings are credit linked to the Beijing municipality, reflecting the company's strong operational and strategic ties with the Beijing government through carrying out government-directed initiatives, such as the New Shougang Beijing Development and the Caofeidian Development. KEY ASSUMPTIONS Fitch's key assumptions within our rating case for the issuer include: - iron-ore price assumptions in line with Fitch's commodity forecast of USD45/tonne for 2018-2019 and in the long term; - stable steel production volume; and - capex estimated at CNY15.5 billion in 2017 and CNY21.9 billion in 2018. RATING SENSITIVITIES Positive: Developments that may, individually or collectively, lead to positive rating action include: - an upgrade of Fitch's internal assessment of the creditworthiness of the Beijing municipality; or - if Shougang's legal, operational and strategic linkages with the Beijing municipality are strengthened. Negative: Developments that may, individually or collectively, lead to negative rating action include: - a lowering of Fitch's internal assessment of the creditworthiness of the Beijing municipality; or - a weakening of Shougang's legal, operational and strategic linkages with the Beijing municipality LIQUIDITY Comfortable Liquidity: As of end-2016, Shougang's cash and equivalents stood at CNY26.9 billion and its unused facilities at CNY275 billion, compared with short-term debt of CNY131 billion. The company has always been able to roll over its short-term bank loans. Contact: Primary Analyst Laura Zhai Director +852 2263 9974 19/F Man Yee Building 68 Des Voeux Road Central, Hong Kong Secondary Analyst Charles Li Analyst +86 21 5097 3016 Committee Chairperson Kalai Pillay Senior Director +65 6796 7221 Date of Relevant Rating Committee: 17 November 2016 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 Criteria for Rating Non-Financial Corporates - Effective from 27 September 2016 to 10 March 2017 (pub. 27 Sep 2016) here Parent and Subsidiary Rating Linkage (pub. 31 Aug 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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