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Fitch Affirms Jiangsu NewHeadLine at 'BB+'; Outlook Stable
December 14, 2016 / 9:47 AM / in a year

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

(The following statement was released by the rating agency) HONG KONG, December 14 (Fitch) Fitch Ratings has affirmed Jiangsu NewHeadLine Development Group Co., Ltd's (Jiangsu NHL) Long-Term Foreign- and Local- Currency Issuer Default Ratings (IDRs) at 'BB+' with a Stable Outlook. A full list of rating actions is at the end of this commentary. KEY RATING DRIVERS Links to Lianyungang Municipality: The ratings of Jiangsu NHL are credit-linked to Lianyungang municipality in China's north-eastern Jiangsu province. This is reflected in full state ownership of Jiangsu NHL, moderate municipal oversight of its financials, strategic importance of the entity's operation to the municipality and its legal status. These factors result in a high likelihood that the municipality will provide Jiangsu NHL with extraordinary support, if needed. Therefore, Jiangsu NHL is classified as a credit-linked public sector entity under Fitch's criteria. Lianyungang's Creditworthiness: Lianyungang municipality reported satisfactory economic growth for 2015 and the first three quarters of 2016. However, fiscal performance for the first three quarters of 2016 weakened due to lower fiscal income and increased debt. Nonetheless, Fitch's assessment of the municipality's overall credit profile remains unchanged. Strategic Importance Assessed at Mid-Range: Jiangsu NHL is an integral part of the municipality's flagship economic zone, the Lianyungang Economic and Technology Development Zone (Lianyungang ETDZ). The company plays an important role in implementing the blueprint of Lianyungang municipality and the Lianyungang ETDZ's management committee. It is an important municipal entity for developing large-scale urban infrastructure projects and providing ancillary services in the Lianyungang ETDZ. Integration Assessed at Mid-Range: Jiangsu NHL received CNY1.58bn in government subsidies between 2012 and 2015. According to Jiangsu NHL, from 2016 to 2020, Lianyungang ETDZ is committed to injecting at least CNY500m in capital each year for debt repayment and providing at least CNY400m in subsidies each year to support the entity's operations. Jiangsu NHL received capital injections from Lianyungang ETDZ's management committee during 2016 and its paid-up capital increased to CNY12.2bn by end-October 2016, from CNY10.5bn a year earlier. Moderate Control and Supervision: Lianyungang municipality appoints most of Jiangsu NHL's board members and approves its major projects. The municipality also closely monitors Jiangsu NHL's financing plan and debt levels and the company is required to regularly report its operational and financial results to the municipality and Lianyungang ETDZ's management committee. Weak Financial Profile: Jiangsu NHL incurred large capex, negative free cash flow and high leverage over the past three years. Fitch expects this trend to continue in the medium term, driven by ongoing infrastructure construction and a long receivables settlement period. A large amount of receivables are from Lianyungang ETDZ and its finance bureau. An extension in receivable settlement could adversely affect the company's liquidity. Fitch sees ongoing subsidies and capital injections as potential mitigants to Jiangsu NHL's liquidity risk. RATING SENSITIVITIES An upgrade of Fitch's credit view on Lianyungang municipality and a stronger or more explicit support commitment from the municipality may trigger positive rating action on Jiangsu NHL. Significant weakening of Jiangsu NHL's strategic importance to the municipality, a dilution of the municipality's shareholding to below 75% or reduced explicit and implicit municipality support may result in a downgrade. A downgrade could also result from the municipality's weaker fiscal performance or increased indebtedness, leading to deterioration in the sponsor's internally assessed creditworthiness and, as a result, of Jiangsu NHL's ratings. The full list of rating actions is as follow: Jiangsu NewHeadline Development Group Co., Ltd. Long-Term Foreign-Currency IDR affirmed at 'BB+'; Outlook Stable Long-Term Local-Currency IDR affirmed at 'BB+'; Outlook Stable ZHIYUAN Group (BVI) Co., Ltd. (Jiangsu NHL's wholly owned subsidiary) USD300m of 6.2% senior unsecured notes due 2019 affirmed at 'BB+' Contact: Primary Analyst Jean Luo Associate Director +852 2263 9952 Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road Central, Hong Kong Secondary Analyst Terry Gao Director +852 2263 9972 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=1016451 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. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. 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. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. 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