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Fitch Assigns Xuzhou Hi-Tech First-Time 'BB-'; Outlook Stable
December 23, 2016 / 11:22 AM / 10 months ago

Fitch Assigns Xuzhou Hi-Tech First-Time 'BB-'; Outlook Stable

(The following statement was released by the rating agency) HONG KONG, December 23 (Fitch) Fitch Ratings has assigned Xuzhou Hi-Tech Industrial Development Zone State-owned Asset Management Co., Ltd. (Xuzhou Hi-Tech) Long-Term Foreign- and Local-Currency Issuer Default Ratings of 'BB-'. The Outlook is Stable. KEY RATING DRIVERS Links to Tongshan District: The ratings of Xuzhou Hi-Tech are credit linked to Tongshan District, which is part of Xuzhou Municipality in China's eastern Jiangsu Province. This is based on the district government's 100% ownership of the entity, strong government oversight of its financials, moderate integration and strategic importance of the entity's operation to the district. These factors result in a high likelihood of extraordinary support from the district, if needed. Therefore, Xuzhou Hi-Tech is classified as a credit-linked public-sector entity under Fitch's criteria. Legal Status Attribute Assessed at Mid-Range: Xuzhou Hi-Tech is allowed to go bankrupt and not all of its employees are civil servants. Tongshan's Creditworthiness: Tongshan District is a county-level local regional government in Jiangsu Province, which had the second-largest gross regional product (GRP) among China's provinces in 2015. Tongshan's creditworthiness is supported by its strong economy, which is reflected in its GRP per capita at CNY86,000 in 2015, 165% of the national GDP per capita. Strategic Importance Attribute Assessed at Mid-Range: Xuzhou Hi-Tech is the only local-government financing vehicle that the authorities use to fund the development of the Xuzhou National High-Tech Industrial Development Zone (Xuzhou HTZ). The company is the sole entity involved in developing large-scale urban infrastructure projects, providing ancillary services and inviting investment in the zone. Xuzhou Hi-Tech also plays an important role in implementing the blueprint of the Xuzhou municipal government, Tongshan district government and Xuzhou HTZ Management Committee. Integration Attribute Assessed at Mid-Range: As a core functional public-sector entity in Xuzhou HTZ, Xuzhou Hi-Tech receives financial support from the government in various forms, such as capital injections and government subsidies. Xuzhou Hi-Tech received annual subsidies of CNY60m-120m during 2013-2015. The district government increased its support to the company in 2015 with a cash injection of CNY1.68bn, the company said. Control and Oversight Attribute Assessed at Stronger: Xuzhou Hi-Tech is wholly owned by the government, the board members are mainly appointed by the government, and major projects require the government's approval. Xuzhou Hi-Tech's financing plan and debt levels are also closely monitored by the government, and the company is required to report its operational and financial results to the government on a regular basis. Standalone Profile at 'B': Xuzhou Hi-Tech's standalone credit profile is comparable with peers rated 'B'. Its financial profile is characterised by high capex, a substantial amount of receivables compared with total assets and large inventory related to urban infrastructure development. EBITDA/interest coverage dropped to less than 2x and net debt/EBITDA fell to around 4.5x at end-2015. Fitch believes this trend will continue in the medium term, driven by the ongoing infrastructure investments within the Xuzhou HTZ. RATING SENSITIVITIES Links with Municipality: An upgrade of Fitch's internal assessment on the creditworthiness of Tongshan District as well as a stronger or more explicit commitment of support from the district government may trigger positive rating action on Xuzhou Hi-Tech. A significant weakening Xuzhou Hi-Tech's strategic importance to the district, dilution of the Xuzhou Hi-Tech's government's shareholding, or reduced district support, may result in a downgrade. A downgrade may also stem from weaker fiscal performance or increased indebtedness of the Tongshan District, leading to deterioration in its creditworthiness. Contact: Primary Analyst Lorraine Liu Analyst +852 2263 9929 Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road Central, Hong Kong Secondary Analyst Terry Gao Director +852 2263 9972 Tertiary Analyst Ark Huang Analyst +86 21 2028 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 _id=1017043 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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