October 10, 2017 / 4:21 AM / in 4 months

Fitch Publishes Yiwu State-Owned Capital Operation's 'BBB' Ratings; Outlook Stable

(The following statement was released by the rating agency) HONG KONG/SHANGHAI, October 10 (Fitch) Fitch Ratings has published China-based Yiwu State-Owned Capital Operation Co., Ltd's (YWSCOC) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) of 'BBB'. The Outlook is Stable. KEY RATING DRIVERS Linked to Yiwu Municipality: YWSCOC's ratings are credit-linked with those of Yiwu municipality in eastern-China's central Zhejiang province. The link reflects strong government oversight and supervision, strategic importance of the entity's operation to the municipality, and integration with the municipal budget. These factors indicate YWSCOC is likely to receive extraordinary state support, if needed. Therefore, Fitch classifies it as a credit-linked public sector entity under the agency's criteria. Yiwu's Creditworthiness: Yiwu is a county-level local and regional government (LRG) region globally known for its small commodity trading and vibrant wholesale markets. The United Nations and other authorities list Yiwu China Commodity City as the world's largest small-commodity wholesale market. The municipality's economic strength ranked sixth among more than 2,800 county-level LRGs in China, according to an affiliate of the China Ministry of Industry and Information. Legal Status Attribute Mid-Range: YWSCOC is registered as a state-owned limited liability company under Chinese company law. It is wholly owned by Yiwu State-Owned Assets Supervision and Administration Commission (SASAC), and is supervised by the regional government. Strong Strategic Importance: YWSCOC is Yiwu's flagship local government funding vehicle (LGFV). Its business scope spans across various public sectors, including infrastructure construction, resettlement housing, water supply, sewage treatment, food reserves and forest preservation. YWSCOC is also designated by the government to operate state-owned assets, including wholesale trading marts, public transportation and an inland port. Tight Control and Supervision: YWSCOC's board is appointed mainly by the government, and major projects require government approval. The government also closely monitors the entity's financing plan and debt levels, and YWSCOC is required to regularly report its operational and financial results. Government Integration Attribute Stronger: Yiwu has provided ongoing monetary and non-monetary support, including subsidies and tax rebates, capital injections, government debt replacements and exclusive concession rights for operating state-owned assets. Yiwu SASAC has injected over 90% of its supervised assets into YWSCOC. Fitch expects government support to continue in the medium term, with YWSCOC remaining as the primary arm to provide Yiwu's public-sector services. Solid Standalone Profile: YWSCOC's standalone credit profile is more favourable than most of China's other LGFVs, underpinned by healthy leverage and adequate coverage. YWSCOC's concessionary and commercial businesses - market operations and property development - partially make up for the losses incurred by its public-service responsibilities. We expect YWSCOC's debt/EBITDA to remain at 10x-12x and its EBITDA/interest at 2x-3x in the next two to three years. RATING SENSITIVITIES A stronger or more explicit municipal government support commitment may trigger positive rating action on YWSCOC. Significant changes to YWSCOC's strategic importance, dilution of the government's shareholding or reduced implicit government support could lead to a wider rating gap between YWSCOC and its sponsor. An upgrade of Fitch's credit view on Yiwu may trigger positive rating action on YWSCOC. Negative rating action on YWSCOC could derive from a deterioration of Yiwu's credit profile, which could lower Fitch's internal assessment of the municipality's creditworthiness. Contact: Primary Analyst Janet Liu Associate Director +852 2263 9983 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 Guido Bach Senior Director +49 69 768076 111 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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