OREANDA-NEWS. Fitch Ratings has assigned Shanghai Pudong Development (Group) Co., Ltd. (SPD) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) of 'A'. The Outlook is Stable.

KEY RATING DRIVERS

Links to Shanghai Municipality: SPD's ratings are credit-linked to those of the Shanghai Municipality. This is reflected in the municipal government's 100% ownership in SPD, strong government oversight of SPD's financials, and strategic importance of the entity's operation to Shanghai. These factors mean there is a strong likelihood the municipal government would extend extraordinary support to SPD, if needed. Therefore, SPD is classified as a credit-linked public-sector entity under Fitch criteria.

Shanghai's Strong Creditworthiness: Shanghai, which is China's financial centre, had the highest gross regional product among all municipalities across China in 2015. The municipality has strong budgetary performance, a well-diversified social-economic profile and a critical role as the national financial centre and the heart of Yangtze River Delta Region. The strengths are partially mitigated by its moderately high level of contingent liabilities arising from its public-sector entities.

Strategic Importance: SPD is an integral to the development of Shanghai Pudong New Area, which the municipal government plans to turn into an important international economic, financial, trading and logistic hub in the city to drive growth. SPD plays a critical role in implementing the government's blueprint for the area. The entity is also the government's arm in developing large-scale urban infrastructure projects.

Tight Control and Supervision: SPD's major development plans need approval from the government. SPD's financing plan and indebtedness level are also closely monitored by the government, and it needs to report its budgetary performance on a regular basis. SPD's board members are mainly appointed by the government.

Standalone Credit Profile: SPD's financial metrics is characterised by large capex, negative free cash flow and high leverage resulting in an intrinsic credit profile that is below its supported rating. This is typical of public-sector entities. Fitch expects this trend will continue in the next two to three years, driven by new municipal infrastructure projects. Nevertheless, the high visibility of SPD's project pipeline, stable profit margin, and the strong and continued support from the government could mitigate these risks.

RATING SENSITIVITIES
Closer Ties with Municipality: A strong or more explicit support commitment from the municipality, a higher strategic importance to the municipality, or closer integration with the government may trigger positive rating action on SPD.

Lower Importance, Weaker Municipal Profile: Significant weakening of SPD' strategic importance to the municipality, dilution of the municipality's shareholding, or reduced explicit and implicit municipality support may result in a downgrade. Negative rating action could also stem from the municipality's weaker fiscal performance or higher indebtedness. This could lead to a lowering of Fitch's internal assessment of Shanghai's creditworthiness and, as a result, of SPD's rating.