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Fitch Affirms Shanghai Pudong Development Group at 'A'/Stable
March 23, 2017 / 1:59 PM / 9 months ago

Fitch Affirms Shanghai Pudong Development Group at 'A'/Stable

(The following statement was released by the rating agency) HONG KONG/SHANGHAI, March 23 (Fitch) Fitch Ratings has affirmed Shanghai Pudong Development (Group) Co., Ltd.'s (SPD) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at 'A'. The Outlook is Stable. KEY RATING DRIVERS Links to Shanghai Municipality: SPD's ratings are credit-linked to those of the Shanghai Municipality. This is reflected in the municipal government's 100% ownership of SPD, strong government oversight of SPD's financials, and strategic importance of the entity's operation to Shanghai. These factors mean there is a strong likelihood the municipal government would extend extraordinary support to SPD, if needed. Therefore, SPD is classified as a credit-linked public-sector entity under Fitch's criteria. Shanghai's Strong Creditworthiness: Shanghai, which is China's financial centre, had the highest gross regional product among all municipalities across China in 2016. The municipality has strong budgetary performance, a well-diversified social-economic profile and a critical role as the national financial centre and the heart of Yangtze River Delta Region. The strengths are partially mitigated by its moderately high level of contingent liabilities arising from its public-sector entities. Legal Status Attribute Assessed at Mid-Range: SPD's legal status is assessed at mid-range, as it is registered as a local state-owned limited liability company under Chinese company law. Strategically Important: SPD is integral to the development of Shanghai Pudong New Area, which the municipal government plans to turn into an important international economic, financial, trading and logistic hub in the city to drive growth. SPD plays a critical role in implementing the government's blueprint for the area. The entity is also the government's arm in developing large-scale urban infrastructure projects. Control & Supervision Attribute Assessed at Stronger: SPD's major development plans need approval from the government. SPD's financing plan and indebtedness level are also closely monitored by the government, and it needs to report its budgetary performance on a regular basis. SPD's board members are mainly appointed by the government. Strong Integration with Government: SPD receives subsidies and capital injections from the government. The municipality also signs build-transfer contracts with SPD for municipal infrastructure projects. Fitch expects the government subsidies and capital injections to continue in the medium term, as SPD continues to undertake municipal infrastructure projects at the request of the government. Standalone Credit Profile: SPD's financial profile is characterised by large capex, negative free cash flow and high leverage resulting in an intrinsic credit profile that is below its supported rating. This is typical of public-sector entities. Fitch expects this trend will continue in the next two to three years, driven by new municipal infrastructure projects. Nevertheless, the high visibility of SPD's project pipeline, stable profit margin, and the strong and continued support from the government could mitigate these risks. RATING SENSITIVITIES Closer Ties with Municipality: A stronger or more explicit support commitment from the municipality, a higher strategic importance to the municipality, or closer integration with the government may trigger positive rating action on SPD. Lower Importance, Weaker Municipal Profile: Significant weakening of SPD's strategic importance to the municipality, dilution of the municipality's shareholding, or reduced explicit and implicit municipality support may result in a downgrade. Negative rating action could also stem from the municipality's weaker fiscal performance or higher indebtedness. This could lead to a lowering of Fitch's internal assessment of Shanghai's creditworthiness and, as a result, of SPD's rating. Contact: Primary Analyst Terry Gao Senior Director +852 2263 9972 Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road Central, Hong Kong Secondary Analyst Ark Huang Analyst +86 21 5097 3153 Committee Chairperson Guido Bach Senior Director +49 69 768 076 111 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 _id=1020982 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 WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2016 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. 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Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. 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