December 19, 2017 / 7:42 AM / a year ago

Fitch Rates Hefei Industry Investment Holding's USD Notes Final 'BBB'

(The following statement was released by the rating agency) HONG KONG, December 19 (Fitch) Fitch Ratings has assigned Xinxing Industry Investment Company Limited's USD300 million 4.25% notes due 2020 a final rating of 'BBB'. The notes are unconditionally and irrevocably guaranteed by the issuer's ultimate parent, Hefei Industry Investment Holding (Group) Co., Ltd. (HIIG, BBB/Stable). The offshore notes are rated at same level as HIIG's Issuer Default Rating as they represent direct, unsubordinated, unconditional and unsecured obligations of HIIG and shall at all times rank pari passu with all other present and future unsecured and unsubordinated obligations of HIIG. The final rating follows the receipt of documents confirmation to information already received and is in line with the expected rating assigned on 29 November 2017. KEY RATING DRIVERS Links to Hefei Municipality: The ratings on HIIG are credit-linked to Fitch's assessment of Hefei Municipality's credit profile. This is due to HIIG's 100% government ownership via the Hefei State-owned Assets Supervision and Administration Commission (Hefei SASAC), strong government control and oversight of its financials, and mid-range strategic importance of the entity's operation to the municipality. These factors result in a strong likelihood of extraordinary support, if needed. Hefei's Creditworthiness: Hefei is the capital of Anhui Province and an important centre in China's thriving Yangtze River Delta. Hefei's gross regional product rose 10% to CNY627 billion in 2016, placing it 13th among all regions in China and making up a quarter of the output in Anhui Province. Hefei's budget performance and leverage are average, and it has a diversified socio-economic profile. The resilient property market strengthens the municipality's fiscal flexibility. Legal Status at 'Mid-Range': HIIG is a one of the leading public-sector entities of Hefei Municipality. It is registered as a wholly state-owned limited liability company under China's Company Law. Hefei SASAC is appointed by the municipal government to own 100% of HIIG. Under its current legal status, any major decisions such as appointment of board members, change in shareholding structure, operating and financing plan will require approval from Hefei SASAC. Hefei government has no plan to dilute its shareholding in HIIG as of November 2017. Strategic Importance at 'Mid-Range': HIIG is the Hefei's government only platform to promote investments in and development of local industries. HIIG has been tasked with optimising allocation of state-owned capital, speeding up integration of production and research, encouraging innovation, driving progress towards higher-value industries and services, promoting state-owned enterprises reform and restructuring state-owned assets. Integration at 'Mid-Range': HIIG has received CNY7.5 billion in government support since its establishment in 2015. The support includes financial subsidies, capital injections, transfers of shares, land sales revenue returns, tax returns and special project funds. The Hefei government injected CNY3 billion of cash and assets in 2016, which brought HIIG's registered capital to CNY8.1 billion. Government support for HIIG is likely to continue because more industry investment and development opportunities will arise as the city's economy grows strongly. Control and Supervision at 'Strong': HIIG is 100% owned by the Hefei government via Hefei SASAC. The company's board members are all appointed by Hefei Municipal Committee and its financing plan and indebtedness are also closely monitored by the government. HIIG is also required to report to the government its operational and financial results on a regular basis. Weak Standalone Profile: HIIG was established in 2015 as a result of a merger of two public service entities in Hefei. The company is still at the development stage and continued restructuring has resulted in fluctuating income and asset levels in the past two years. HIIG reported high leverage and weak FFO to debt and interest coverage in 2015-2016. Fitch expects debt to rise due to the capex needed to build factories and invest in industries. Fitch expects leverage to remain high and debt and interest servicing ability to be limited in the medium term due to the expected increase in overall debt. RATING SENSITIVITIES An upgrade of Fitch's internal credit view on Hefei Municipality as well as a stronger or more explicit support commitment from the province may trigger positive rating action on HIIG. Significant weakening of HIIG strategic importance to the municipality, dilution of the municipality's shareholding, or reduced explicit and implicit municipal support, which may cause material deterioration to HIIG's financial performance, may result in a widening in the gap between HIIG's rating and Fitch's credit view of the municipality. A downgrade could also stem from a weaker fiscal performance or increased indebtedness of the municipality, leading to deterioration in the sponsor's creditworthiness. A rating action on HIIG would lead to a similar action of the US dollar notes. 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 Vladimir Redkin Senior Director +7 495 956 2405 Date of Relevant Rating Committee: 14 November 2017 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: Additional information is available on Applicable Criteria Rating Criteria for Public Sector Revenue-Supported Debt (pub. 05 Jun 2017) 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 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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