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Fitch Affirms Tianjin Infrastructure at 'A'; Outlook Stable
May 31, 2017 / 10:48 AM / 6 months ago

Fitch Affirms Tianjin Infrastructure at 'A'; Outlook Stable

(The following statement was released by the rating agency) HONG KONG/SHANGHAI, May 31 (Fitch) Fitch Ratings has affirmed Tianjin Infrastructure Construction & Investment (Group) Co., Ltd.'s (TJIIG) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at 'A'. The Outlook is Stable. Fitch has also affirmed TJIIG's US dollar senior unsecured notes at 'A'. The notes are rated at the same level as TJIIG's IDR as they represent its direct, unconditional, unsecured and unsubordinated obligations. The IDRs and senior debt rating have been affirmed because linkages with Tianjin, a municipality about 170 kilometres south-east of Beijing, remain unchanged. TJIIG's 100% ownership by the municipality, the city's supervision of its financials and the strategic importance of its public-sector business to the city suggest a high likelihood of TJIIG receiving extraordinary support if needed. KEY RATING DRIVERS Links to Tianjin Municipality: TJIIG's ratings are credit-linked to Tianjin municipality. This is reflected in its 100% state ownership, strong municipal oversight of its financials and the strategic importance of its operation to the municipality. These factors result in a high likelihood of extraordinary support, if needed. Therefore, TJIIG is classified as a credit-linked public-sector entity under Fitch's criteria. Tianjin's Strong Creditworthiness: Fitch considers the budget performance of Tianjin, a port city about the size of Belgium, as satisfactory, with a diversified socio-economic profile and strategic importance as a core city in the Bohai Rim Economic Zone in north-eastern China. Tianjin's resilient property market also strengthens the city's fiscal flexibility. The strengths are partially mitigated by moderately high contingent liabilities arising from its state-owned entities and the municipality's weak transparency. Strategic Importance: TJIIG, as China's (A+/Stable) largest urban developer by total assets at end-2016, is an integrated city infrastructure service provider and plays an important role in implementing the blueprint of the Tianjin municipal government. Unlike many other urban developers focusing on a specific area, TJIIG's business includes development and maintenance of municipal roads and bridges, urban development, primary land development, water and utilities, metro and rail transit and toll roads. Ongoing Government Fiscal Support: TJIIG, as a core functional public-sector entity in Tianjin, has received significant government support in the form of ongoing capital injections, subsidies (subsidies represented 21% of operating revenue in 2016) and other services to support its business, which consists mainly of functional urban services provided on the government's behalf. The fiscal support aims to partly fund TJIIG's capex and debt servicing. Tight Control and Supervision: TJIIG's board is appointed mainly by the Tianjin municipal government and major projects require government approval. TJIIG's financing plan and debt levels are closely monitored by the municipality and the company is required to regularly report its operational and financial results. Financial Profile: As a local government financing vehicle, TJIIG's financial profile has been characterised in the previous five years by large capex, negative free cash flow and high leverage. TJIIG has had a debt/EBITDA ratio at around 70x-90x and EBITDA/gross interest expense at around 0.2x in the previous two years. Fitch believes this trend will continue in the medium term, driven by ongoing infrastructure investments in Tianjin. However, the risk arising from TJIIG's weak standalone financial profile is mitigated by the strong tangible support via capital injections and subsidies from the municipality. RATING SENSITIVITIES Links with Municipality: An upgrade or downgrade of Fitch's internal assessment on Tianjin may trigger positive or negative rating action on TJIIG. A significant weakening of TJIIG's strategic importance to the municipality, dilution of the government's shareholding or reduced municipality support may result in a downgrade. Any rating action on TJIIG would lead to similar action on its US dollar notes. 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 Vladimir Redkin Senior Director +7 495 956 2405 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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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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