Fitch Assigns Tianjin Rail Transit Group 'A' Rating; Outlook Stable
OREANDA-NEWS. Fitch Ratings has assigned Tianjin Rail Transit Group Co., Ltd. (TRT) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDR) of 'A' with a Stable Outlook.
Fitch has also assigned a proposed US dollar bond to be issued by Rail Transit International Investment Company Limited (RTII) an 'A(EXP)' expected rating. The bond will be unconditionally and irrevocably guaranteed by Tianjin Rail Transit Group (Hong Kong) Co., Limited (TRTHK), a wholly owned subsidiary of TRT. The bond proceeds will be used for general corporate purposes.
In place of a guarantee, TRT has granted a keepwell and liquidity support deed and a deed of equity interest purchase undertaking to ensure TRTHK has sufficient assets and liquidity to meet its obligations under the guarantee for the proposed US dollar bond, which will be TRT's first issuance of offshore debt.
The bond is rated at the same level as TRT's IDR due to the strong linkage between TRTHK and TRT and because the keepwell and liquidity support deed and deed of equity interest purchase undertaking transfer the ultimate responsibility of payment to TRT.
In Fitch's opinion, the keepwell and liquidity support deed and the deed of equity interest purchase undertaking all signal a strong intention from TRT to ensure that TRTHK has sufficient funds to honour its debt obligations.
The final rating is contingent upon the receipt of final documents conforming to information already received.
KEY RATING DRIVERS
Linked to Tianjin Municipality: TRT's ratings are credit linked to those of Tianjin Municipality, a coastal city adjacent to China's capital, Beijing. The link reflects strong oversight and supervision of TRT by the Tianjin municipal government, the multi-year integration of TRT's funding needs in the municipal budget and the strategic importance of TRT's rail transit development and operations to the city. These factors result in a strong likelihood that the municipality would extend extraordinary support to TRT, if needed.
Tianjin's Strong Creditworthiness: Tianjin ranks first among cities across China in terms of average annual growth in gross regional product in the past decade. The municipality has a strong budgetary performance, a well-diversified social-economic profile and a key strategic role in the Beijing-Tianjin-Hebei Integration area and the Bohai Economic Rim. The strengths are partly mitigated by its moderately high level of contingent liabilities arising from state-owned enterprises and relatively weak transparency.
Strategic Importance: TRT is the sole builder and operator of urban rail transport in the central area of Tianjin, and it executes the municipality's rail transportation policy. The high urbanisation level makes underground rail networks essential in easing the heavy traffic congestion in the city.
Multiple-Year Funding Commitment: TRT received around CNY29bn in a capital injection in 2014 from the government. This was the largest amount the government has injected so far and was more than double the 2013 amount. In 2015, TRT received government grants of more than CNY1bn. The municipality plans to continue to provide funding support to TRT.
Tight Control and Supervision: TRT's rail transit and railway network development plans all require the approval of the Tianjin Municipal Development and Reform Commission. TRT's financing plans and debt levels are also closely monitored by the municipality. TRT reports its budget performance to the municipal government on a regular basis. TRT's board members, except for employee representatives, are all appointed by Tianjin Municipality.
'BB' Standalone Profile: TRT's standalone credit profile is constrained by the public service nature of its core business in building and operating urban rail networks. In addition, the mechanism the municipal government uses to set returns for TRT produces returns that are much lower than that from market-based pricing. Debt servicing is funded more by capital injections than TRT's profitability.
Linkage with Municipality: Significant changes to TRT's strategic importance, dilution in the municipality's shareholding, or reduced explicit and implicit municipality support, could lead to a wider rating gap between TRT and Tianjin Municipality.
Creditworthiness of Municipality: An upgrade of Fitch's internal credit view on Tianjin Municipality may trigger a positive rating action on TRT. A weaker fiscal performance or higher indebtedness of the municipality could lead to a lowering of Fitch's internal assessment of Tianjin's creditworthiness and thus may trigger a negative rating action on TRT.
Any rating action on TRT's IDRs would result in similar rating actions on the ratings of the proposed US dollar bond.