Fitch Affirms Tianjin Binhai New Area Construction and Investment at 'A-'; Outlook Stable
Fitch has also affirmed the US dollar senior unsecured notes issued by Zhaohai Investment (BVI) Limited at 'A-'. The notes are unconditionally and irrevocably guaranteed by Binhai Jiantou (Hong Kong) Development Limited, a wholly owned subsidiary of Tianjin BHCIG.
The IDR and senior debt ratings have been affirmed because the linkages with Tianjin, a municipality about 170 kilometres south-east of Beijing, remain unchanged. Tianjin BHCIG's 100%-municipality ownership, the city's supervision of its financials and the strategic importance of its public-sector business to the city suggest a high likelihood of Tianjin BHCIG receiving extraordinary support if needed.
KEY RATING DRIVERS
Links to Tianjin Municipality: Tianjin BHCIG's ratings are credit-linked to but not equalised with its sponsor Tianjin, as reflected in Tianjin BHCIG's 100%-ownership, strong municipal oversight of its financials and the strategic importance of the entity's operation to Tianjin. These factors mean there is a strong likelihood of Tianjin BHCIG receiving extraordinary state support, if needed. Therefore, Fitch classifies it as a credit-linked public-sector entity.
Strong Creditworthiness: Tianjin, a port-city about the size of Belgium, has a budget performance that Fitch considers satisfactory, a diversified socio-economic profile and strategic importance as a core-city of north-eastern China's Bohai Economic Rim. Tianjin's resilient property market also strengthens the city's fiscal flexibility. These strengths are partially mitigated by high contingent liabilities from its state-owned entities and Tianjin municipality's poor transparency.
Secure Legal Status: Tianjin BHCIG, was established in 2008 as a wholly state-owned limited liability company. Under this legal status, the company's major decisions require government verification and approval. The government has no plans to dilute its Tianjin BHCIG shareholding. Fitch assesses Tianjin BHCIG's legal status attribute as Mid-Range.
Strategic Importance to City: Tianjin BHCIG is part of Tianjin's Binhai New Area, an economic and industrial zone in the Bohai Economic Rim and similar in function to Shanghai Pudong New Area. Tianjin BHCIG, a pioneer in high-technology industrial investments, plays an important role in implementing the government's blueprint of turning Binhai New Area into an economic powerhouse. It is the sole entity developing large-scale urban infrastructure projects for the Tianjin government. Fitch assesses Tianjin BHCIG's strategic importance attribute as Mid-Range.
Strong Government Integration: Binhai New Area's government reports directly to Tianjin and is obliged to purchase Tianjin BHCIG's infrastructure projects after they are completed, ensuring stable and predictable cash flows for the company. In 2015, CNY3.4bn of Tianjin BHCIG's debt was swapped into municipal bonds under China's debt-swap programme, lowering the company's interest burden. Tianjin BHCIG expects to swap CNY12bn-15bn of its debt in 2016. As a result, Fitch considers Tianjin BHCIG as Tianjin's core functional public-service entity and its integration into the municipal government's budget to be in the Mid-Range.
Tight State Control, Supervision: Tianjin and the Binhai New Area authorities appoint the company's board members, approve its major projects and closely monitor its financing plan and debt levels. Tianjin BHCIG also needs to regularly report its operational and financial results to the government. Fitch assesses the control attribute as Stronger.
Weak Financial Profile: Tianjin BHCIG's financial profile in the past five years is characterised by large capex, negative free cash flow and high leverage; typical of public-sector entities. Fitch believes this trend will continue in the next two years, driven by ongoing infrastructure development in Binhai New Area. Nevertheless, Fitch expects Binhai New Area authorities, and ultimately, Tianjin's support, to partially neutralise such risk.
An upgrade of Fitch's credit assessment of Tianjin and a stronger or more explicit support commitment from the municipality may trigger positive rating action on Tianjin BHCIG.
A significant weakening of Tianjin BHCIG's strategic importance to the city, dilution of the municipality's shareholding or reduced explicit and implicit municipality support may result in a downgrade.
A downgrade could also stem from weaker fiscal performance or increased indebtedness of the municipality, leading to a deterioration in Fitch's assessment of the sponsor's creditworthiness.
Rating action on Tianjin BHCIG would lead to similar action of the US dollar notes.