December 5, 2017 / 8:44 AM / 10 days ago

Fitch Rates Inner Mongolia High-Grade Highway Construction and Development's USD Bonds 'BBB'

(The following statement was released by the rating agency) HONG KONG/SHANGHAI, December 05 (Fitch) Fitch Ratings has assigned a final rating of 'BBB' to Inner Mongolia High-Grade Highway Construction and Development Company Ltd.'s (IMHCD) USD400 million 4.375% senior unsecured bonds due 2020. The notes constitute IMHCD's direct, general, unsubordinated, unsecured and unconditional obligations and rank pari passu with all its other present and future unsubordinated and unsecured obligations. The net proceeds will be used for general corporate purposes. The assignment of the final rating follows the receipt of documents conforming to information already received. The final rating is in line with the expected rating assigned on 16 November 2017. KEY RATING DRIVERS Linked to Inner Mongolia Autonomous Region: IMHCD's ratings are credit-linked with those of Inner Mongolia Autonomous Region. The link reflects strong government oversight and supervision, the high strategic importance of IMHCD's public-sector business and midrange integration with the municipal budget. These factors indicate a strong likelihood that IMHCD would receive extraordinary government support, if needed. Autonomous Region's Creditworthiness: Inner Mongolia is positioned as a strong industrial hub in northern China, benefiting from rich resources, such as mining of coal, iron ore and rare earth as well as wind energy. The secondary industry formed 49% of total gross regional product (GRP) in 2016, with mining being the largest contributor, although the contribution has been declining. The autonomous region's GRP and GRP per capita ranked 16th and sixth, respectively, among China's 31 mainland provinces. Legal Status Mid-Range: IMHCD is registered as a state-owned limited-liability company under Chinese company law. It is under the direct supervision of the autonomous region's Department of Transport. Strategic Importance Strong: The autonomous region's government has designated IMHCD as the sole autonomous-level state-owned enterprise responsible for the development of the region's highway network. IMHCD plays an important role in implementing the autonomous region's blueprint for transportation infrastructure construction by operating key regional highways and high-grade roads and serving as a financing vehicle for road construction. Tightly Controlled and Supervised: IMHCD is controlled directly by the autonomous region's government, which closely monitors its financing plan and debt levels and appoints or nominates IMHCD's board members, except for employee representatives. Its expressway network development also needs approval from the Inner Mongolia Communications Department. Integration Midrange: IMHCD has a record of receiving ongoing monetary and non-monetary support from the central and local government. Monetary support includes subsidies, tax incentives and capital injections. Non-monetary support includes exclusive concession rights to develop and operate key toll roads within the autonomous region. Moreover, IMHCD has not been required to record depreciation with respect to its roads as fixed assets since 2016. Weak Financial Profile: IMHCD's standalone credit profile is constrained by its high debt leverage and low coverage. Fitch expects its net debt/EBITDA to stay around 12x-14x, while its interest coverage should remain at 1.0x-1.1x over the next two to three years. The weak standalone credit profile is mitigated by strategic links with the government, which may provide monetary and non-monetary support to the company. RATING SENSITIVITIES Significant changes to IMHCD's strategic importance, a diluted municipal shareholding or reduced explicit and implicit governmental support could lead to a wider gap between IMHCD's ratings and Fitch's assessment of the credit profile of the autonomous region's government. An upgrade of Fitch's internal credit view of the autonomous region may trigger positive rating action on IMHCD. A weaker fiscal performance or heightened indebtedness of the regional government could lower Fitch's internal assessment of the autonomous region government's creditworthiness and trigger negative rating action on IMHCD. Rating action on IMHCD would lead to similar action on the rating of its US dollar notes. Contact: Primary Analyst Samuel Kwok Associate Director +852 2263 9961 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 Vladimir Redkin Senior Director +7 495 956 2405 Date of Relevant Rating Committee: 13 October 2017 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. 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