Fitch Publishes 'BBB+' Rating on Shaoxing City Investment's USD Notes
OREANDA-NEWS. Fitch Ratings has published the rating on Shaoxing City Investment Group Limited(SCIG,BBB+/Stable) USD300m 4.75% senior unsecured notes due 2019 at 'BBB+'. The notes are issued by Shaoxing City Investment (HK) Limited (SCIHK), a wholly owned subsidiary of SCIG. The proceeds will be used for general corporate purposes.
KEY RATING DRIVERS
SCIHK is SCIG's primary overseas platform for investment and offshore financing. SCIG has granted a keepwell and liquidity support deed and deed of equity interest purchase undertaking to ensure that SCIHK has sufficient assets to meet its obligations.
The notes are rated at the same level as SCIG's Issuer Default Rating, given the strong link between SCIG and SCIHK and because the keepwell and liquidity support deed and deed of equity interest purchase undertaking transfer the ultimate responsibility of payment to SCIG.
In Fitch's opinion, both the keepwell and liquidity support deed and the deed of equity interest purchase undertaking signal a strong intention from SCIG to ensure that SCIHK has sufficient funds to honour the debt obligations. The agency also believes SCIG intends to maintain its reputation and credit profile in the international offshore market, and is unlikely to default on its offshore obligations. Additionally, a default by SCIHK could have significant negative repercussions on SCIG for any future offshore funding.
The ratings of SCIG are credit linked to Shaoxing Municipality, which is located in Zhejiang Province, one of the strongest economic regions in China. This reflects the group's 100% ownership by the municipality, the municipality's oversight of SCIG's financials, and the strong policy role of the group's public-sector business. These factors result in a high likelihood of extraordinary support from the municipality, if needed.
SCIG is the major urban infrastructural investment platform of Shaoxing Municipality, and it plays an important role in implementing Shaoxing's blueprint for urban development.
Shaoxing Municipality has commissioned SCIG to develop various urban infrastructure projects - 97% of the company's assets are government projects. The municipal government has also provided strong fiscal support to SCIG for most of the projects. It provided SCIG with CNY1.99bn in government subsidies and CNY2.75bn in capital injections in 2012-2014.
Any rating action on SCIG will result in a similar rating action on the bond issued by SCIHK.
An upgrade of Fitch's credit view on Shaoxing Municipality as well as a stronger or more explicit support commitment from the municipality may trigger a positive rating action on SCIG.
Significant weakening of SCIG's strategic importance to the municipality, dilution of the government's shareholding, 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 Fitch's internal assessment of the municipality's creditworthiness.