April 7, 2017 / 2:48 AM / 4 months ago

Fitch Rates Nanjing Yangzi at 'A-'; Outlook Stable

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(The following statement was released by the rating agency) HONG KONG/SHANGHAI, April 06 (Fitch) Fitch Ratings has assigned Nanjing Yangzi State-owned Investment Group Co., Ltd. (NYSI) Long-Term Foreign- and Local-Currency Issuer Default Ratings of 'A-' with a Stable Outlook. KEY RATING DRIVERS Links to Nanjing Municipality: NYSI's ratings are closely credit-linked to, but not equalised with, Nanjing municipality. Fitch's view is based on full government ownership and hence oversight of NYSI, as well as the high strategic importance of the entity's operation to the municipality. NYSI's strong operational ties with its sponsor result in a high likelihood of extraordinary support, if needed, from the municipality. NYSI is classified as a credit-linked public-sector entity under Fitch's criteria. Nanjing's Creditworthiness: As the capital of Jiangsu province, Nanjing is an upper-tier city with a favourable socio-economic profile; it has a dynamic workforce and above-average gross domestic product per capita. Backed by a strong economy and expanding tertiary segment, Nanjing has achieved solid budgetary performance and tax revenue growth over the past two years. The municipality's strategic importance and systematically higher level of provincial support should mitigate its moderately high contingent liabilities arising from its public-sector entities. Legal Status "Mid-Range": NYSI is registered as a state-owned limited liability company and is managed and wholly-owned by the Jiangbei New Area Administrative Committee (JNAAC), a sub-department of Nanjing municipality. NYSI is allowed to bankrupt under its current legal status and its employees are not all civil servants. Therefore, its legal status does not indicate automatic absorption of its liabilities by Nanjing municipality. Control and Supervision "Stronger": NYSI's board is ultimately appointed by Nanjing municipality with input from JNAAC, Nanjing State-Owned Assets Supervision and Administration Commission, Nanjing Finance Bureau and others. The company is required to regularly report its operational and financial results. Moreover, the government has strong oversight over NYSI's financing plan and debt level and all major projects require government approval. Strategic Importance "Stronger": NYSI is the flagship local government funding vehicle platform for developing Nanjing Jiangbei New Area, a state-level area similar to Tianjin's Binhai New Area. NYSI plays an important role in carrying out the government's initiatives, including public construction, industrial park management and utility services. Considering Jiangbei is the only new area in Jiangsu province, NYSI should be strategically important to both Jiangsu province and Nanjing municipality. Fitch believes that a default of NYSI could have negative political consequences for Nanjing and damper the ability of NYSI to obtain continued external funding. Government Integration "Mid-Range": NYSI has established close financial and operational ties with Nanjing municipality. Financially, NYSI has received a combination of injections and subsidies; the latter accounted for 17% of revenue and 89% of net profit between 2014-2015. Fitch expects government support to continue. Operationally, NYSI serves as a financing platform on behalf of the government, not only for managing development funds for Jiangbei, but also for public-housing projects across Nanjing. Weak Standalone Profile: As a public-sector entity, NYSI's financial profile is weak in view of its large debt-funded capital expenditure, negative free cash flow and high leverage, with total debt/total asset of 56% at end-2015. In view of ongoing infrastructure developments in Jiangbei New Area, NYSI will likely maintain a similar standalone profile over the medium term. Nevertheless, Fitch expects risks to be mitigated by ongoing financial support from the Nanjing government. RATING SENSITIVITIES Links with Municipality: A rating downgrade may stem from a weakening of NYSI's strategic importance to the municipality or shareholding dilution. A weaker fiscal performance or increased indebtedness of the municipality, leading to deterioration in the sponsor's internally assessed creditworthiness, may also trigger a downgrade, as NYSI is credit-linked with the municipality. An upgrade of Fitch's internal credit view assessment of Nanjing municipality, or stronger or more explicit support from the municipality, may trigger an upgrade of NYSI's ratings. Contact: Primary Analyst Samuel Kwok Associate Director +852 2263 9961 Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road Central, Hong Kong Secondary Analyst Terry Gao Senior Director +852 2263 9972 Tertiary Analyst Li Chen Analyst +86 21 5097 3009 Committee Chairperson Guido Bach Senior Director +49 69 768076 111 Date of relevant committee 21 March 2017 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 _id=1021835 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. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT <a href="https://www.fitchratings.com">WWW.FITCHRATINGS.COM.. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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