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Fitch Affirms Jiangsu HanRui at 'BB+'; Outlook Stable
June 20, 2017 / 10:35 AM / 6 months ago

Fitch Affirms Jiangsu HanRui at 'BB+'; Outlook Stable

(The following statement was released by the rating agency) HONG KONG, June 20 (Fitch) Fitch Ratings has affirmed Jiangsu HanRui Investment Holding Co.,Ltd.'s Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDR) at 'BB +'. The Outlook is Stable. Fitch has also affirmed the 'BB+' long-term foreign-currency ratings on the USD490 million 4.9% senior unsecured notes due 2019 issued by Hanrui Overseas Investment Co., Ltd. The notes are unconditionally and irrevocably guaranteed by Hanrui International Investment Company Limited (HII), HanRui's wholly owned subsidiary. Under the keepwell structure, HanRui undertakes to ensure HII has sufficient assets and liquidity to meet its obligations. KEY RATING DRIVERS Linked to Zhenjiang Municipality: HanRui's ratings are credit-linked with those of Zhenjiang municipality in Jiangsu province. The link reflects strong oversight and supervision of HanRui by the Zhenjiang government and the company's strategic importance as the flagship local government funding vehicle (LGFV) platform for public-sector construction in Zhenjiang New Area, a national-level economic and technological development zone. Hence, HanRui is classified as a public-sector entity under Fitch's criteria. Zhenjiang's Creditworthiness: Zhenjiang's economy is backed by a traditionally strong secondary industry and the expanding tertiary industry has also become an important driver as part of the municipality's economic transformation. Zhenjiang maintained strong gross regional product (GRP) growth of 9.3% in 2016, outperforming both Jiangsu and the national average. Zhenjiang has a favourable socio-economic profile, despite its smaller economy, with population inflow and GRP per capita that ranked fifth among Jiangsu's 13 municipalities. These strengths mitigate the city's moderately high continent liabilities arising from its state-owned entities. Legal Status 'Mid-Range': HanRui is registered as a wholly state-owned limited liability company under Chinese company law and is under the direct supervision of Zhenjiang State-Owned Assets Supervision and Administration Commission (SASAC). Zhenjiang SASAC has full control over HanRui and HanRui's daily operations are supervised by the administrative committee of Zhenjiang New Area on behalf of Zhenjiang SASAC. The government has no plan to dilute its shareholding in HanRui. Control 'Stronger': HanRui's financing plan and debt level are closely monitored by the municipality. HanRui reports its budget performance on a regular basis and its board members, except for employee representatives, are all appointed by Zhenjiang municipality. Strategic Importance 'Stronger': HanRui is Zhenjiang's flagship urban development LGFV and helps fund infrastructure and social housing construction within the Zhenjiang New Area. Zhenjiang New Area and HanRui play an important role in driving the transformation of Zhenjiang's economy, which would suffer significant consequences from a default. Hence, this attribute has been given more weight for the rating. Integration 'Stronger': HanRui has received consistent government financial support, including subsidies and capital injections. Annual subsidies have averaged 148% of the company's net profit over the previous three years, demonstrating the government's commitment in maintaining HanRui as a going concern. Fitch expects continued government support to partly fund HanRui's capital expenditure and debt servicing, considering its high strategic importance. Weak Standalone Profile: HanRui's financial profile is borne by large capital expenditure, negative free cash flow and high leverage. Its weak standalone credit metrics are not likely to see any significant improvement in the near term. Fitch expects ongoing government financial support to mitigate this risk, despite HanRui's infrastructure developments in Zhenjiang New Area. RATING SENSITIVITIES A stronger or more explicit support commitment from Zhenjiang municipality may trigger positive rating action on HanRui. Significant changes to HanRui's strategic importance, a diluted municipal shareholding or reduced explicit and implicit municipality support could lead to a wider rating gap between HanRui and Zhenjiang. An upgrade of Fitch's internal credit view of Zhenjiang may trigger positive rating action on HanRui. A weaker fiscal performance or higher municipality indebtedness could lead to a lowering of Fitch's internal assessment of Zhenjiang's creditworthiness and thus trigger negative rating action on HanRui. 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 Committee Chairperson Guido Bach Senior Director +49 69 768076 111 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#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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