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Fitch Affirms Xuzhou Economic and Technology at 'BB+/Stable'
June 2, 2017 / 4:42 AM / 6 months ago

Fitch Affirms Xuzhou Economic and Technology at 'BB+/Stable'

(The following statement was released by the rating agency) HONG KONG, June 02 (Fitch) Fitch Ratings has affirmed Xuzhou Economic and Technology Development Zone State-Owned Assets Management Co., Ltd.'s (XETZ) Long-Term Foreign- and Local-Currency Issuer Default Ratings at 'BB+' with a Stable Outlook. Fitch has also affirmed the USD300 million 4.5% notes due 2019 issued by XETZ's wholly owned subsidiary, Xuzhou Economic and Technology Development Zone International Investment Co., Ltd., at 'BB+'. KEY RATING DRIVERS Links to Xuzhou Municipality: The ratings of XETZ are credit linked to Xuzhou municipality. This is reflected in its 100% state ownership, strong government oversight of its financials and strategic importance of its operation to the municipality. These factors result in a high likelihood of extraordinary support, if needed. Therefore, XETZ is classified as a credit-linked public sector entity under Fitch's criteria. Xuzhou's Healthy Creditworthiness: Xuzhou, as a logistic hub in eastern China, has a budget performance that is considered satisfactory by Fitch and a diversified socio-economic profile. Xuzhou's gross regional product (GRP) ranks fifth largest among all 13 prefectures in Jiangsu province, whose GRP, in turn, is the second largest among all provinces in China. Xuzhou's GRP per capita of CNY66,845 in 2016 was below the Jiangsu level of CNY95,259, but higher than the national level of CNY53,890. Nevertheless, the strengths are partially mitigated by potentially high contingent liabilities arising from Xuzhou's public sector entities as well as the municipality's weak transparency. Strategic Importance: XETZ is an integrated body of Xuzhou's flagship economic development zone - Xuzhou Economic and Technology Zone (Xuzhou ETZ). It is the sole entity involved in the zone's development of large-scale urban infrastructure projects, providing ancillary services and inviting investment. XETZ also helps implement the blueprint of the Xuzhou municipal government and Xuzhou ETZ management committee. Tangible Government Fiscal Support: The government has provided significant capital injections, subsidies and repurchased government services to monetarily support XETZ's business, which mainly consists of providing city services on the government's behalf. The government further injected CNY471 million of capital in the form of land assets in 2016. Tight Control and Supervision: XETZ's board is mainly appointed by the government and major projects require government approval. The government also monitors XETZ's financing plan and debt levels and the company is required to regularily report its operational and financial results. Weak Financial Profile: As a local government financing vehicle, XETZ's financial profile in the previous five years has been characterised by large capex, negative free cash flow and high leverage. Fitch expects this to continue in the medium term. Operating revenue fell by 8% in 2016, as the company invested more money into projects that do not yet recognise revenue. Fitch believes the revenue drop is temporary. XETZ has also strengthened the terms and conditions of government project repurchasing, which should improve the company's liquidity. RATING SENSITIVITIES Links with Municipality: An upgrade of Fitch's internal assessment of Xuzhou municipality and a stronger or more explicit commitment of municipal support may trigger positive rating action on XETZ. A significant weakening of XETZ's strategic importance to the municipality, dilution of government's shareholding or lower municipal support may result in a downgrade. A downgrade may also stem from the municipality's weaker fiscal performance or increased indebtedness leading to deterioration in its creditworthiness. Contact: Primary Analyst Janet Liu Associate Director +852 2263 9983 Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road Central, Hong Kong Secondary Analyst Samuel Kwok Associate Director +852 2263 9961 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. 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. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. 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 © 2017 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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