OREANDA-NEWS. Fitch Ratings has affirmed China State Construction International Holdings Limited's (CSCI) Long-Term Issuer Default Rating (IDR) and senior unsecured rating at 'BBB'. The Outlook for the IDR is Stable. The rating of the outstanding USD500m 3.125% senior unsecured notes due 2018 issued by China State Construction Finance (Cayman) I Limited, a wholly owned subsidiary of CSCI, has also been affirmed at 'BBB'.

KEY RATING DRIVERS

Stable Performance: Over the past year, CSCI has maintained its solid order book growth and leading positions in the Hong Kong and Macau construction markets. CSCI achieved low leverage, as measured by Fitch-defined funds from operations (FFO)-adjusted net leverage, of less than 1.2x as of end-2013. Fitch expects CSCI to maintain steady EBITDAR margins of over 9%, and its leverage to remain at lower than 2x in 2014 and beyond.

Group Linkages Drive Ratings: CSCI is 58.2% owned by China Overseas Holdings Limited, which in turn is wholly owned by China State Construction Engineering Corporation Limited (CSCECL). China Overseas Holdings' largest subsidiary is China Overseas Land & Investment Limited (BBB+/Stable), one of the largest homebuilders in China and a key support for Fitch's assessment of China Overseas Holdings' steady credit profile.

China Overseas Holdings' credit profile is further supported by Fitch's view that its parent, CSCECL, China's largest engineering and construction company, is of high strategic importance to the central government. CSCECL is 56.2% indirectly owned by the State-Owned Assets Supervision & Administration Commission of the State Council (SASAC). CSCI's rating is driven by its strong operational linkage with its parent companies and strong legal ties in the financing agreements within the group, in line with Fitch's parent and subsidiary linkage rating criteria. The Stable Outlook reflects Fitch's expectation that CSCI will maintain strong linkages to its parent companies.

Asset Injection, Parent Support: On 19 December 2014, China Overseas Holdings sold 100% of China Overseas Ports Investment Company Limited (COP) to CSCI for HKD1.31bn, which included CSCI taking over a HKD450m shareholder's loan extended by China Overseas Holdings. The acquisition was mostly satisfied by share issuance to the parent. COP Group is primarily engaged in port operations and logistics services in China. The move illustrates the parent's support for CSCI's efforts to strengthen its infrastructure businesses.

KEY ASSUMPTIONS
Fitch's key assumptions within our rating case for the issuer include:
- Linkage between CSCECL and SASAC remains strong.
- Linkage between China Overseas Holdings and CSCECL remains strong.
- Linkage between China Overseas Holdings and China Overseas Land & Investment remains strong.
- Linkage between CSCI and China Overseas Holdings remains strong.
- No major acquisitions and disposals from 2015 and beyond.
- Stable operating cash cycle.

RATING SENSITIVITIES

By adopting a top-down approach for the ratings of this entity under Fitch's parent and subsidiary linkage rating methodology, the agency's specific financial rating guidelines are set and monitored based on non-public financial disclosures from the parent entities, and therefore changes to the ratings of CSCI will be dependent on any changes in the non-public financial profile of its parent entities.

Publicly disclosed ratings guidelines for CSCI include:

Negative: Future developments that may, individually or collectively, lead to negative rating actions include:
- Weakening of credit profile of CSCI's parent group companies
- Weakening linkages between CSCI and its parent companies

Positive: Positive rating action is not envisaged for the next 12-18 months.