October 19, 2017 / 10:09 AM / a year ago

Fitch Publishes Jinan West City Investment and Development's 'BBB' Rating

(The following statement was released by the rating agency) HONG KONG, October 19 (Fitch) Fitch Ratings has published Jinan West City Investment and Development Group Co., Ltd.'s (JWC) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) of 'BBB'. The Outlook is Stable. At the same time, Fitch has assigned JWC's existing senior unsecured US dollar notes a rating of 'BBB'. The offshore notes were issued by JWC directly. The notes are rated at the same level as JWC's Long-Term Foreign-Currency IDR because they are direct, unconditional, unsubordinated and senior unsecured obligations of JWC. KEY RATING DRIVERS Linked to Jinan Municipality: JWC's ratings are credit linked to, but not equalised with, Fitch's internal assessment of the creditworthiness of Jinan Municipality. The link reflects strong oversight and supervision of JWC by the municipal government, integration of JWC with the municipal budget, and the strong strategic importance of JWC's public-sector business to the municipality. These factors indicate that JWC is likely to receive extraordinary support from the municipal government, if needed. JWC is classified as a credit-linked public-sector entity under Fitch's criteria. Jinan's Creditworthiness: Jinan is the provincial capital of Shandong, the third-largest economy in terms of gross regional product (GRP) in China in 2016. The municipal economy is largely driven by tertiary industries, such as tourism and logistics, and tax revenue accounted for around 64% of total operating revenue in past three years. Strong Strategic Importance: The municipality in 2017 consolidated four local government financing vehicles (LGFVs) into two to eliminate unnecessary competition. JWC's main goal - to develop a 450 sq km area in western Jinan - remains unchanged after the consolidation, which indicates the entity's importance to the municipal government. JWC's business includes land development, urban infrastructure development, and operation and management of state-owned assets. Mid-Range Legal Status: JWC will continue to be a wholly state-owned limited liability company under the Chinese company law. There will not be any asset transfers between JWC, its newly formed parent and its fellow subsidiaries. Tight Control and Supervision: JWC is directly managed, supervised and owned by its parent group, which is in turn managed and supervised by the Jinan Finance Bureau. The parent is wholly owned and controlled by the Jinan Finance Bureau. The major strategic plans, funding plans and capex budget of JWC need to be approved by the government before execution. The Jinan Finance Bureau has tighter control over JWC's debt level compared with other LGFVs controlled by the State-owned Assets Supervision and Administration Commission (SASAC) of Jinan. The Jinan Finance Bureau directly injects capital and provides subsidies and other policy support, such as rebates on land-use rights costs, to JWC. Mid-Range Integration: JWC relies heavily on explicit and implicit support from the provincial government. The most important government support for JWC is in the form of land use rights; the government also provides financial subsidies on urban infrastructure projects and other types of support. Weak Standalone Profile: JWC's standalone credit profile is constrained by the public-service nature of its primary-land development business. JWC also holds a large amount of public-sector assets that generate low profitability on behalf of the government. The company's businesses that are commercially operated are very limited and are not able to make up for the losses from the public services it provides. The strategic link with the Jinan Municipality could lead to a fair level of extraordinary government support, if needed. RATING SENSITIVITIES A stronger or more explicit support commitment from the Jinan municipal government may trigger a positive rating action on JWC. Significant changes to JWC's strategic importance, a dilution in municipal shareholding, or reduced explicit and implicit governmental support could lead to a wider gap between JWC's ratings and Fitch's internal view of the creditworthiness of Jinan. An upgrade of Fitch's internal view on the creditworthiness of Jinan may trigger a positive rating action on JWC. A weaker fiscal performance or heightened indebtedness of the provincial government could lead to a lowering of Fitch's internal assessment of JWC's creditworthiness and thus may trigger a negative rating action on JWC. 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 Lorraine Liu Associate Director +852 2263 9929 Committee Chairperson Vladimir Redkin Senior Director +7 495 956 2405 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 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. 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. 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