OREANDA-NEWS. Fitch Ratings has assigned Tianjin Binhai New Area Construction & Investment Group Co., Ltd. (Tianjin BHCIG) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) of 'A-'. The Outlook is Stable.

Fitch has also assigned a proposed US dollar senior unsecured bond to be issued by Zhaohai Investment (BVI) Limited (ZIL) an 'A-(EXP)' expected rating. The bond will be unconditionally and irrevocably guaranteed by Binhai Jiantou (Hong Kong) Development Limited (BJHK), a wholly owned subsidiary of Tianjin BHCIG. The bond proceeds will be used for general corporate purposes.

In place of a guarantee, Tianjin BHCIG has granted a keepwell and liquidity support deed and a deed of equity interest purchase undertaking to ensure BJHK has sufficient assets and liquidity to meet its obligations under the guarantee for the proposed US dollar bond, which will be Tianjin BHCIG's first issuance of offshore debt.

The bond is rated at the same level as Tianjin BHCIG's IDRs, given the strong linkage between BJHK and Tianjin BHCIG and because the keepwell and liquidity support deed and deed of equity interest purchase undertaking signal a strong intention from Tianjin BHCIG to ensure that BJHK 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
Links to Tianjin Municipality: Tianjin BHCIG's ratings are credit linked to Tianjin municipality. This reflects the Tianjin municipality's 100% ownership of Tianjin BHCIG and strong oversight of the company's financials, and the strategic importance of the company's operation to the municipality. These factors result in a strong likelihood of extraordinary support, if needed, from the municipality to the company.

Tianjin's Strong Creditworthiness: Tianjin municipality has a sound budget performance, diversified socio-economic profile and strategic importance as a core city in the Bohai Rim Economic Zone in northern China. The city's vibrant property market also strengthens the municipality's fiscal flexibility. The strengths are mitigated by moderately high liabilities arising from Tianjin municipality's state-owned entities, and relatively weak transparency. Fitch has also factored in the debt of Tianjin BHCIG and other municipal financing vehicles into its credit assessment of the municipality.

Strategic Importance: Tianjin BHCIG is an integrated platform and strategic arm of Tianjin municipality's state-level Binhai New Area, a reform pilot district similar to Shanghai Pudong New Area. Tianjin BHCIG has an important role in implementing the blueprint developed by the Tianjin government and the central government to turn Binhai New Area into a hub of economic activity and reforms. It is the sole entity developing large scale urban infrastructure projects on behalf of the Tianjin municipal government.

Strong Government Integration: The government of Tianjin Binhai New Area, a prefecture government under the Tianjin municipality, is obliged to purchase Tianjin BHCIG's infrastructure projects after completion. This arrangement ensures stable and predictable cash flows for Tianjin BHCIG. Since Tianjin BHCIG's inception, the government has made CNY77.7bn (accounting for 43% of Tianjin BHCIG's total assets in 2014) of procurements, capital injections, asset transfers, subsidies and tax refunds to Tianjin BHCIG and is planning to make additional land use rights transfers. Fitch believes that Tianjin BHCIG's debt will be ultimately serviced by the Tianjin municipality via subsidies and transfers because the company is extending a public service on behalf of the government.

Tight Control and Supervision: The company's board members are all appointed by Tianjin municipality and the Tianjin Binhai New Area government; and its major projects need government approval. The company's financing plans and debt levels are also closely monitored by the municipality. Tianjin BHCIG is also required to report to the government its operational and financial results on a regular basis.

Moderate Financial Profile: Tianjin BHCIG's financial profile in the past five years was characterised by sizable capital expenditure, negative free cash flow and high leverage. Fitch believes this trend will continue in the medium term, driven by the ongoing infrastructure development in Tianjin Binhai New Area, and the company will continue to receive to subsidies and/or capital injections from the municipality. Fitch expects Tianijn Binhai New Area's government and ultimately Tianjin municipality's to continue providing financial support to Tianjin BHCIG.

RATING SENSITIVITIES
Rating Upgrade: An upgrade of Fitch's credit view on Tianjin municipality as well as a stronger or more explicit commitment of support from the municipality may trigger a positive rating action on Tianjin BHCIG.

Rating Downgrade: Significant weakening of Tianjin BHCIG's strategic importance to the municipality, dilution of the municipality's shareholding, and/or reduced explicit and implicit municipality support, may result in a downgrade. A downgrade could also stem from a weaker fiscal performance or increased indebtedness of the municipality, leading to deterioration in the Tianjin municipality's creditworthiness.