December 16, 2016 / 12:50 PM / a year ago

Fitch Rates Fujian Zhanglong's USD Notes Final 'BB+'

(The following statement was released by the rating agency) HONG KONG, December 16 (Fitch) Fitch Ratings has assigned Fujian Zhanglong Group Co., Ltd.'s (Zhanglong, BB+/Stable) USD150m 4.50% senior unsecured notes due 2019 a final rating of 'BB+'. The bond is issued directly by Zhanglong and is rated at the same level as the Issuer Default Rating on the company. The bond will constitute a direct, unconditional, unsubordinated and unsecured obligation of Zhanglong and rank at least pari passu with all of the company's other present and future unsecured obligations. The assignment of the final rating follows the receipt of documents conforming to information already received and the final rating is in line with the expected rating assigned on 5 December 2016. KEY RATING DRIVERS Linked to Zhangzhou Municipality: The ratings of Zhanglong are credit-linked to, but not equalised with, Fitch's internal assessment of the creditworthiness of Zhangzhou Municipality. The link reflects strong government control and oversight of the entity, mid-range assessment of the entity's strategic importance to the municipality, integration with the government budget and legal status. These factors result in a high likelihood of extraordinary support, if needed, from the municipality. Therefore, Zhanglong is classified as a credit-linked public-sector entity under Fitch's criteria. Zhangzhou's Creditworthiness: Zhangzhou is the fastest-growing economy in China's southern Fujian Province. Its gross regional product (GRP) has been expanding at about 11% a year for the past three years. GRP per capita for 2015 was CNY55,569, higher than the national average of CNY49,351. Its operating revenue has been growing steadily with satisfactory operating margin. Fiscal strength was partly offset by a high debt burden relative to its fiscal performance. Legal Status Attribute Assessed at Mid-Range: Zhanglong is registered as a state-owned limited liability company under Chinese company law. It is wholly owned by Zhangzhou State-owned Assets Supervision and Administration Commission and supervised by the Zhangzhou government. Strategic Importance Attribute Assessed at Mid-Range: Zhanglong is one of the largest investment and financing vehicles owned by the Zhangzhou Municipality, and it plays an important role in the city's daily operations and development. It is the city's sewage treatment service provider and the major water supplier to urban areas in the city. It also engages in infrastructure construction and has participated in bridge and expressway projects linking Zhangzhou Municipality to other cities. In addition, Zhanglong is a designated agency for sourcing building materials for certain local-government-owned housing and infrastructure projects. Integration Attribute Assessed at Mid-Range: Zhanglong has been receiving subsidies from the Zhangzhou municipal government. It received CNY912m in 2013, CNY728m in 2014, CNY562m in 2015 and CNY461m in the first half of 2016. Furthermore, Zhanglong had other receivables of more than CNY800m due from government entities at end-2015. Control and Supervision Attribute Assessed at Stronger: Zhanglong's board of directors is appointed by the government. Major projects and investments require the government's approval. Zhanglong's financing plan and debt levels are monitored by the government, and the company is required to report its operational and financial results to the government on a regular basis. 'B' Category Standalone Profile: Zhanglong has a weak credit profile, with increasing debt and weakening profitability. Its debt-to-adjusted EBITDA ranged from 7x to more than15x in the past three years. Fitch believes this trend will continue in the medium term, driven by ongoing infrastructure investments in Zhangzhou City, and the thin profitability of its trading business. RATING SENSITIVITIES Link with Municipality: A stronger or more explicit support commitment from Zhangzhou Municipality, or an increased focus on public-service provision and infrastructure construction may trigger a positive action on Zhanglong's ratings. Significant weakening of Zhanglong's strategic importance to the municipality, dilution of the government's shareholding, and/or reduced government support could result in a downgrade. Creditworthiness of Municipality: An upgrade of Fitch's internal credit view on Zhangzhou Municipality may trigger a positive rating action. Negative rating action could derive from deterioration in Zhangzhou Municipality's credit profile. A rating action on Zhanglong would also lead to a similar action on the US dollar notes. 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 Vladimir Redkin Senior Director +7 495 956 2405 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: Date of relevant rating committee: 29 November 2016 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 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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