(The following was released by the rating agency)
HONG KONG/SINGAPORE, February 03 (Fitch) Fitch Ratings has assigned China State Construction International Holdings Limited’s (CSCI; ‘BBB-'/Stable) proposed senior unsecured notes an expected ‘BBB-(EXP)’ rating.
The notes will be issued by China State Construction Finance (Cayman) I Limited and unconditionally and irrevocably guaranteed by CSCI. The final rating on the proposed notes is contingent upon the receipt of documents conforming to information already received.
The notes are rated at the same level as CSCI’s Issuer Default Rating of ‘BBB-', as they represent direct, unconditional, unsecured and unsubordinated obligations of the company.
Net proceeds from the issue will mainly be used to repay and/or refinance existing debt, to finance new and existing projects and for general corporate purposes.
In line with Fitch’s ‘Parent and Subsidiary Rating Linkage’ criteria, the rating reflects CSCI’s strong legal ties in the financing agreements within the group and strong operational linkage with its parent companies.
CSCI is controlled by holding company China Overseas Holdings Limited (COHL), which in turn is fully owned by China State Construction Engineering Corporation Limited (CSCECL). As the only CSCECL subsidiary operating in Hong Kong’s and Macau’s engineering and construction (E&C) market, CSCI is positioned as the group’s key operation unit for infrastructure operation and investments in China. CSCI had consistently been injected from parent companies transfer-operating and transfer-operating-transfer assets with recurring income stream in the past. For build-transfer and build-operating-transfer projects in China, CSCI often partners up with fellow subsidiaries and is backed by the parent companies through operational and financial arrangements. During CSCI’s equity financing in 2007/2009/2011, parent companies also directly supported CSCI in rights issues underwriting.
The Stable Outlook reflects Fitch’s expectation that CSCI will maintain strong linkages to its parent companies. CSCI had a low leverage, as measured by Fitch defined funds from operations adjusted net leverage, of less than 1.5x as of end-2011. Fitch expects CSCI to maintain steady EBITDAR margins of over 10%, and, driven by rapid expansion, leverage of over 2.5x after 2012.
WHAT COULD TRIGGER A RATING ACTION? Adopting a top-down approach for the ratings of this entity under Fitch’s parent and subsidiary rating methodology, the agency’s specific financial rating triggers are set and monitored based on non-public financial disclosures from the parent entities, and therefore changes to the ratings level of CSCI will be dependent on any changes in the non-public financial profile of its parent entities. As such, publicly disclosed ratings triggers for CSCI include:
Positive: Future developments that may, individually or collectively, lead to positive rating action include:
- Strengthening of the credit profile of CSCI’s parent group companies
Negative: Future developments that may, individually or collectively, lead to negative rating action include:
- Weakening of the credit profile of CSCI’s parent group companies
- Weakening linkages between CSCI and the parent companies