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Fitch Assigns Huai An Traffic 'BB+' Ratings; Outlook Stable
October 12, 2016 / 2:01 PM / a year ago

Fitch Assigns Huai An Traffic 'BB+' Ratings; Outlook Stable

(The following statement was released by the rating agency) HONG KONG, October 12 (Fitch) Fitch Ratings has assigned Huai An Traffic Holding Co., Ltd Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDR) of 'BB+'. The Outlook is Stable. Fitch has also assigned Huai An Traffic's proposed senior unsecured US dollar notes an expected rating of 'BB+(EXP)'. The net proceeds of the proposed issue will be used for general corporate purposes. The proposed bonds will be issued directly by Huai An Traffic and are rated at the same level as its IDR. The proposed bonds will constitute direct, unconditional, unsubordinated and unsecured obligations of Huai An Traffic and rank pari passu with all its other senior unsecured obligations. The final ratings on the proposed US dollar notes are contingent upon the receipt of final documents conforming to information already received. KEY RATING DRIVERS Links to Huai'an Municipality: Huai An Traffic's ratings are linked to, but not equalised with, Fitch's internal assessment of the creditworthiness of Huai'an municipality. This is reflected in 100% municipality ownership, strong control and oversight by the municipality, and to a lesser extent, the strategic importance of Huai An Traffic's operation to the municipality. These factors result in a high likelihood of support, if needed, from the municipality. Huai'an Municipality's Healthy Creditworthiness: Huai'an, located in China's Jiangsu province, has a budget performance that is satisfactory and a diversified socio-economic profile. Huai'an's gross regional product growth rate is higher than the national average and its budgetary performance has improved over the last decade. The strengths are partly offset by potentially high contingent liabilities arising from its public-sector entities. Strategic Importance Attribute Mid-range: Huai An Traffic is a major investment and financing platform for transportation-related infrastructure in the municipality. Its major activities include developing, financing, operating and managing toll roads, airports and shipping docks in Huai'an. Nevertheless, its business is relatively diversified, and includes construction, trading, logistics and tourism outside the municipality, which potentially undermine the company's strategic importance to the city. Sponsor Control Attribute Stronger: The Huai'an municipality sets the course of Huai An Traffic's strategic development, appoints most of its senior management and signs off on major decisions. Huai An Traffic's financing plans and debt levels are also closely monitored by the municipality. In addition, Huai An Traffic regularly reports its operational and financial results to the municipality. Integration Attribute Weaker: Municipal subsidies, mainly for airport and tram operations, will account for about 10% of Huai An Traffic's annual revenue, or CNY190m over the medium term, down from 20% up to 2015. Asset purchases help fund operations as well as capital spending in transportation-related infrastructure development. However, cash influx is at times provided late, with a subsequent growth in receivables constraining liquidity, while asset transfers for equity injections only boost capitalisation. Weak Financial Profile: Huai An Traffic's leverage remains high due to its large capex requirements. The company has negative FFO, debt/EBITDA of over 20x and its EBITDA interest coverage is less than 1x. Fitch expects this trend to continue in the next two years, driven by ongoing transportation infrastructure development. The standalone profile is also weakened by extensions of the settlement period for asset purchased by the municipality: while re-calibrations of cash influx help match liquidity needs for debt repayment, Huai An Traffic's is left with large account receivables. RATING SENSITIVITIES Linkage with Huai'an Municipality: A stronger or more explicit support commitment from Huai'an municipality may trigger positive rating action on Huai An Traffic. Significant reduction of the entity's strategic importance or a dilution in the city's shareholding that results in a loss of control could widen the notching down from the sponsor's rating. Huai An Traffic's ratings could also be downgraded if a change in Fitch's rating approach means it is no longer credit-linked to Huai'an municipality. Creditworthiness of Huai'an Municipality: An upgrade or downgrade of Fitch's internal credit view on Huai'an municipality may trigger similar rating action on Huai An Traffic. Rating action on Huai An Traffic would lead to similar action on the rating of the proposed US dollar notes. Contact: Primary Analyst Lin Pei Associate Director +852 2263 9912 Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road Central Hong Kong Secondary Analyst Terry Gao Director +852 2263 9972 Committee Chairperson Raffaele Carnevale Senior Director +39 02 87 90 87 203 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 _id=1012995 Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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