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Fitch Assigns Baoji Investment Group First-Time 'BBB-' Ratings; Outlook Stable
October 9, 2017 / 9:39 AM / a month ago

Fitch Assigns Baoji Investment Group First-Time 'BBB-' Ratings; Outlook Stable

(The following statement was released by the rating agency) HONG KONG/SHANGHAI, October 09 (Fitch) Fitch Ratings has assigned Baoji Investment (Group) Co., Ltd. (BIG) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) of 'BBB-'. The Outlook is Stable. KEY RATING DRIVERS Linked to Baoji Municipality: The ratings of BIG are credit-linked to, but not equalised with, those of Baoji Municipality. The link reflects strong oversight and supervision by the municipal government, and the strategic importance of the entity's operation to the municipality. These factors indicate that BIG is likely to receive extraordinary support from the municipality, if needed. Therefore, BIG is classified as a credit-linked public-sector entity under Fitch's criteria. Baoji's Creditworthiness: Baoji is an industrial and manufacturing hub located in north-western China. Its gross regional product (GRP) ranked fourth among the 10 prefectures in Shaanxi Province, and among the top half of the 333 prefectures in China. Secondary industries, such as non-ferrous metal processing and equipment manufacturing, are the main contributors to the city's GRP, although tertiary industries, including wholesale and retail as well as information technology services, are increasingly important. Its GRP growth has outperformed the provincial and national averages. Legal Status Attribute at Mid-Range: BIG is registered as a state-owned limited liability company under Chinese company law. It is wholly owned by the State-owned Assets Supervision and Administration Commission (SASAC) of Baoji and supervised by the regional government. Strong Strategic Importance: BIG is the flagship local-government financing vehicle in Baoji. Its business scope covers various public sectors, including infrastructure construction, affordable housing, public transportation, water supply, sewage treatment and heat supply. The entity is also an integrated urban developer and public-service provider that plays an important role in implementing the city government's blueprint for urban planning and municipal development. Tight Control and Supervision: BIG is wholly owned by the municipal government through Baoji SASAC. The board members of BIG are mainly appointed by the government, and major projects require the government's approval. BIG's financing plan and debt levels are closely monitored by the government, and the company is required to report its operational and financial results to the government on a regular basis. Government Integration Attribute Mid-Range: The Baoji Municipal Government provides monetary and non-monetary support to BIG, including subsidies, capital injections and government debt replacement. The assets of BIG accounted for over 60% of the total assets supervised by the government. Fitch expects the government support to continue in the medium term, as BIG will remain as the municipal government's primary arm to provide public-sector services. Weak Standalone Profile: BIG's standalone credit profile is constrained by the public service nature of its business in developing public infrastructure as well as providing support to advance the economy of the city. BIG's financial profile is characterised by large capex, negative funds from operation and high leverage. We expect BIG's standalone credit profile to stay in the 'B' category. Fitch forecasts BIG's debt to EBITDA to remain at 30x-40x and EBITDA to interest coverage at 0.6x-0.8x in the next two to three years. RATING SENSITIVITIES A stronger or more explicit commitment of support from the municipal government may trigger positive rating action on BIG. Significant changes to BIG's strategic importance, dilution of the government's shareholding or reduced implicit government support could lead to a wider rating gap between BIG and its sponsor. An upgrade of Fitch's credit view on Baoji Municipality may trigger positive rating action on BIG. Negative rating action on BIG could derive from a deterioration of the credit profile of Baoji Municipality, which could lower Fitch's internal assessment of the municipality's creditworthiness. Contact: Primary Analyst Terry Gao Senior Director +852 2263 9972 Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road Central, Hong Kong Secondary Analyst Ark Huang Analyst +86 21 5097 3153 Committee Chairperson Christophe Parisot Managing Director +33 1 44 29 91 34 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria International Local and Regional Governments Rating Criteria - Outside the United States (pub. 18 Apr 2016) here 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#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. 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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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