September 14, 2017 / 9:10 AM / 10 months ago

Fitch Revises Changchun Urban Development's Outlook to Positive; Affirms at 'BBB'

(The following statement was released by the rating agency) HONG KONG, September 14 (Fitch) Fitch Ratings has revised the rating Outlook on Changchun Urban Development & Investment Holdings (Group) Co., Ltd (CCDG) to Positive from Stable, and has affirmed the Long-Term Foreign-Currency Issuer Default Rating (IDR) and Long-Term Local-Currency IDR at 'BBB'. The revision of the Outlook to Positive reflects Fitch's review of Changchun Municipality, which found stronger economic growth amid rebalancing, stabilising fiscal performance and improved leverage. Fitch has also affirmed the ratings on the USD400 million senior unsecured bonds due March 2021 at 'BBB'. The bonds were issued by Chang Development International Limited and guaranteed by CCDG. KEY RATING DRIVERS Strong Links with Changchun: CCDG's ratings are credit-linked with Fitch's internal assessment of the credit profile of Changchun, a city in China's north-east. This is based on the company's full ownership by the municipality, strong municipal oversight of its financials and operations, integration with the municipality's general account and strategic importance of CCDG's operation to Changchun. These factors suggest a strong likelihood of CCDG receiving extraordinary support from the municipality, if needed. Changchun's Recovering Credit Profile: Changchun's economy has picked up growth momentum amid economic rebalancing and a national revitalisation programme. In 2016 and the first half of 2017, the city recorded strong gross regional product growth of 7.8% and 8% respectively, higher than the national average. Its fiscal performance has shown signs of stabilisation and its leverage profile has improved. Legal Status Attribute Mid-Range: CCDG is wholly owned by Changchun's State-owned Assets Supervision and Administration Commission (SASAC) and under the overall supervision of the Changchun municipal government. Based on its current legal status, CCDG is allowed to go bankrupt. As the government does not automatically absorb CCDG's liabilities, the legal attribute was assessed at Mid-range. Strategic Importance Remains Strong: CCDG is the largest integrated platform and strategic arm of the Changchun Municipality, which uses the company to develop key municipal infrastructure projects, including primary land development, and to provide essential public services, such as water supply and sewage treatment. Its assets account for over 70% of state assets under Changchun SASAC. It has an important role in implementing the city's infrastructure development and operating the monopolistic utility business. Strong Municipal Integration: The Changchun municipal government has been injecting the city's major urban development companies and water utility company into CCDG since it was established in 2013. The government is also committed to provide CNY8 billion a year to the company through a subsidy to lease underground pipeline services. Fitch believes CCDG's debt will be ultimately serviced by the municipal government via subsidies and capital injections. Tight Control and Supervision: CCDG is 100% owned by Changchun SASAC. CCDG's board members are appointed by Changchun SASAC, and its chairman reports to the city mayor directly. Its major projects and financing require government approval. It is also required to report to the government its operational and financial results on a regular basis. Modest Credit Profile: CCDG's financial profile in the last three years was characterised by negative free cash flow, stable subsidy income, and high leverage. Fitch believes this trend will continue in the medium term, driven by the ongoing infrastructure development in Changchun, and CCDG will continue to receive subsidies from the municipality. Fitch expects the Changchun government to continue providing financial support to CCDG. RATING SENSITIVITIES Linkage with Municipality: A stronger or more explicit support commitment from Changchun Municipality may trigger a positive rating action on CCDG. Significant changes to CCDG's strategic importance, a dilution in the government's shareholding, and/or reduced government support, could lead to CCDG no longer being credit-linked to its sponsor. Creditworthiness of Municipality: An upgrade of Fitch's internal credit view on Changchun Municipality may trigger a positive rating action on CCDG. A revision of Fitch's internal assessment on Changchun Municipality's outlook to stable would lead to a similar change of CCDG's rating Outlook. Contact: Primary Analyst Fan Gao Analyst +852 2263 9960 Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road Central, Hong Kong Secondary Analyst Terry Gao Senior Director +852 2263 9972 Committee Chairperson Guido Bach Senior Director +49 69 768076 111 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: Additional information is available on 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. 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